Recent efforts to improve medical education include adopting a new framework based on 6 broad competencies defined by the Accreditation Council for Graduate Medical Education. In this article, the Alliance for Academic Internal Medicine Education Redesign Task Force II examines the advantages and challenges of a competency-based educational framework for medical residents. Efforts to refine specific competencies by developing detailed milestones are described, and examples of training program initiatives using a competency-based approach are presented. Meeting the challenges of a competency-based framework and supporting these educational innovations require a robust faculty development program. Challenges to competency-based education include teaching and evaluating the competencies related to practice-based learning and improvement and systems-based practice, as well as implementing a flexible time frame to achieve competencies. However, the Alliance for Academic Internal Medicine Education Redesign Task Force II does not favor reducing internal medicine training to less than 36 months as part of competency-based education. Rather, the 36-month time frame should allow for remediation to address deficiencies in achieving competencies and for diverse enrichment experiences in such areas as quality of care and practice improvement for residents who have demonstrated skills in all required competencies.