Primary sclerosing cholangitis (PSC) is a chronic cholestatic liver disease, characterized by progressive inflammation and fibrosis of the bile ducts, resulting in biliary cirrhosis and is associated with a high risk of cholangiocarcinoma. The majority of patients are young, male and have coexisting inflammatory bowel disease. PSC is found with a prevalence of 10/100,000 in Northern European populations. The pathophysiology of PSC is a complex multistep process including immunological mechanisms, immunogenetic susceptibility and disorders of the biliary epithelia. The diagnosis is primarily based on endoscopic cholangiography although magnetic resonance imaging is increasingly used; biochemistry and immunoserology as well as histology play only a minor role. Due to the high risk of developing cholangiocarcinoma and also other tumours of the GI tract, surveillance strategies are essential, however they have yet to be established and evaluated. Biochemical parameters, clinical risk factors, endoscopic procedures and imaging techniques contribute to the early identification of patients at risk. Since medical therapy of PSC with ursodeoxycholic acid does not improve survival, to date, liver transplantation is the only option with a cure potential; if transplantation is accurately timed, transplanted PSC patients have an excellent rate of survival. However if cholangiocarcinoma is detected, a curative treatment is not possible in the majority of cases. The present review critically summarizes the current knowledge on the aetiopathogenesis of PSC and gives an overview of the diagnostic approaches, surveillance strategies and therapeutic options. Primary sclerosing cholangitis is a disease of unknown aetiology and without any further curative treatment options apart from liver transplantation. Therefore it may be regarded as the greatest challenge in hepatology today.