The basic mechanisms driving genetic instability underlie a new molecular classification of colorectal cancer that is assuming diagnostic and prognostic importance. These mechanisms and the criteria for stratifying colorectal cancer as microsatellite stable (MSS), microsatellite instability-low (MSI-L) and microsatellite instability-high (MSI-H) are presented. This molecular classification is discussed in relation to morphogenesis, histopathology, behaviour and investigation of prognostic biomarkers in colorectal cancer. Clinical applications are considered, emphasising the role of the pathologist in identifying and working up cases of suspected hereditary non-polyposis colorectal cancer. The principal value of microsatellite instability testing is in relation to the diagnosis of hereditary non-polyposis colorectal cancer. Demonstration of loss of DNA mismatch repair genes, notably hMLH1 and hMSH2, by immunohistochemistry provides additional diagnostic information and may reduce the requirement for microsatellite instability testing. It is likely that testing for DNA mismatch repair will be adopted as a routine for colorectal cancer as more is learned of the distinctive pathobiology and behaviour of MSS, MSI-L and MSI-H cancers.