The psychological contract has been viewed as an explanatory framework for understanding the employment relationship, and is regarded by some researchers as central in understanding employee attitudes and behavior. Despite the importance ascribed to the psychological contract, it remains theoretically underdeveloped and has received limited empirical attention. This study takes a new approach to researching the psychological contract, through the use of daily diaries, and addresses a number of fundamental questions regarding its nature. Results show that both broken and exceeded promises occur regularly and in relation to virtually any aspect of work, that the importance of the promise contributes significantly to emotional reactions following broken and exceeded promises, and that the psychological contract is an important concept for understanding everyday fluctuations in emotion and daily mood. Copyright © 2002 John Wiley & Sons, Ltd.