H5N1 avian influenza is a highly fatal infectious disease that could cause a potentially devastating pandemic if the H5N1 virus mutates into a form that spreads efficiently among humans. Recent findings have led to a basic understanding of cell and organ histopathology caused by the H5N1 virus. Here we review the pathology of H5N1 avian influenza reported in postmortem and clinical studies and discuss the key pathogenetic mechanisms. Specifically, the virus infects isolated pulmonary epithelial cells and causes diffuse alveolar damage and hemorrhage in the lungs of infected patients. In addition, the virus may infect other organs, including the trachea, the intestines, and the brain, and it may penetrate the placental barrier and infect the fetus. Dysregulation of cytokines and chemokines is likely to be one of the key mechanisms in the pathogenesis of H5N1 influenza. We also review the various molecular determinants of increased pathogenicity that have been identified in recent years and the role of avian and human influenza virus receptors in relation to the transmissibility of the H5N1 virus. A comprehensive appreciation of H5N1 influenza pathogenetic mechanisms should aid in the design of effective strategies for prevention, diagnosis, and treatment of this emerging disease.