Although several studies have confirmed the aetiological importance of melanocytic dysplastic naevi (MDN) in the development of cutaneous malignant melanoma (CMM), the analysis of these lesions was directed mostly towards the study of melanomas. The underlying reasons include the relatively large size of CMMs, their direct lethal outcome, and the feasibility of establishing melanoma cell lines. In contrast, because of their relatively small size, questionable malignant potential, and the difficulty in establishing in vitro cultures, MDN have been studied less extensively. Hypothetically, transformed melanocytes can give rise to any lesion in the hierarchy of melanocytic tumours. Based on this hypothetical perspective, and on the epidemiological, morphological, immunohistochemical, and genetic characteristics of MDN, it is not surprising that these lesions occupy an intermediate position in the hierarchy of melanocytic lesions, and may be precursors of CMM. Although this argument appears to be straightforward, it is still controversial. This review explores the components of this argument and provides supporting evidence for this hypothesis.