Biliary sludge was first described with the advent of ultrasonography in the 1970s. It is defined as a mixture of particulate matter and bile that occurs when solutes in bile precipitate. Its composition varies, but cholesterol monohydrate crystals, calcium bilirubinate, and other calcium salts are the most common components. The clinical course of biliary sludge varies, and complete resolution, a waxing and waning course, and progression to gallstones are all possible outcomes. Biliary sludge may cause complications, including biliary colic, acute pancreatitis, and acute cholecystitis. Clinical conditions and events associated with the formation of biliary sludge include rapid weight loss, pregnancy, ceftriaxone therapy, octreotide therapy, and bone marrow or solid organ transplantation. Sludge may be diagnosed on ultrasonography or bile microscopy, and the optimal diagnostic method depends on the clinical setting. This paper proposes a protocol for the microscopic diagnosis of sludge. There are no proven methods for the prevention of sludge formation, even in high-risk patients, and patients should not be routinely monitored for the development of sludge. Asymptomatic patients with sludge can be managed expectantly. If patients with sludge develop symptoms or complications, cholecystectomy should be considered as the definitive therapy. Further studies of the pathogenesis, natural history, and clinical associations of biliary sludge will be essential to our understanding of gallstones and other biliary tract abnormalities.