Purpose: To describe the current state of knowledge in the diagnosis and treatment of dry eye and to suggest where future research should be focused. Methods: Significant clinical and experiment publications are reviewed. Results: The diagnosis of dry eye is based on history, clinical examination, and clinical tests. Population based studies suggest that the incidence of dry eye differs depending on which tests are used for diagnosis. In addition, diagnosis of dry eye is further complicated by the failure to show correlation between symptoms and objective clinical tests. Determining the cause of dry eye when minimal clinical findings are present is difficult. However, in the severer forms of dry eye, where symptoms and signs seem to correlate, the diagnosis is more straightforward. Critical to developing better methods to diagnose and classify the dry eye is understanding the relationships between the lacrimal gland and ocular surface and their neuronal innervation. Historically, treatment of the milder forms of dry eye focused on "watering" the dry eye. In severer forms of dry eye, treatment proves more difficult. The removal of preservatives from topical lubricants allowed more frequent use. Innovations in artificial tear composition with addition of electrolytes provided more physiologic preparations. Recent work emphasizes the role of lacrimal and ocular surface inflammation as an important factor in the development of signs and symptoms and suggests an important role for hormonal and anti-inflammatory therapies. Conclusions: The diagnosis of severe dry eye is straightforward, while its treatment is not. The treatment of the milder dry eye is straightforward, but the diagnosis is not. Future emphasis should be on developing methods to diagnose and classify milder forms of dry eye and to develop better treatments for the more severe dry eye.