Anaemia of chronic disease is the second most common form of anaemia worldwide, and is seen in a variety of inflammatory, infective and malignant diseases. Functional iron deficiency is fundamental to the pathogenesis of the anaemia, and the polypeptide, hepcidin, plays a key role. Diagnosis may be difficult, but new automated red cell indices, algorithms for detection of functional iron deficiency, and assays for hepcidin levels are being developed. Management of the causative disease process will usually improve haemoglobin levels, but where this is not possible, erythropoietic stimulating agents are often used, although there are still concerns about potential adverse effects, especially thromboembolism. There is increasing evidence that supplemental iron given parenterally can safely overcome the functional iron deficiency. Inhibitors of hepcidin, and various inflammatory modulators show promise for the future.