In logistic regression analysis of small or sparse data sets, results obtained by classical maximum likelihood methods cannot be generally trusted. In such analyses it may even happen that the likelihood meets the convergence criteria while at least one parameter estimate diverges to ±∞. This situation has been termed ‘separation’, and it typically occurs whenever no events are observed in one of the two groups defined by a dichotomous covariate. More generally, separation is caused by a linear combination of continuous or dichotomous covariates that perfectly separates events from non-events. Separation implies infinite or zero maximum likelihood estimates of odds ratios, which are usually considered unrealistic. I provide some examples of separation and near-separation in clinical data sets and discuss some options to analyse such data, including exact logistic regression analysis and a penalized likelihood approach. Both methods supply finite point estimates in case of separation. Profile penalized likelihood confidence intervals for parameters show excellent behaviour in terms of coverage probability and provide higher power than exact confidence intervals. General advantages of the penalized likelihood approach are discussed. Copyright © 2006 John Wiley & Sons, Ltd.