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Various aspects of wood formation have been linked to the action of auxin, e.g. cambial activity, dormancy, secondary cell wall deposition and tension wood formation. The presence of a radial auxin concentration gradient across wood-forming tissue has been suggested to regulate cambial activity and differentiation of cambial derivatives by providing positional information to cells within the tissue. Similar patterning mechanisms that depend on the interpretation of auxin thresholds have subsequently been proposed for shoot and root apical meristems. However, direct evidence for the existence of auxin gradients has only been obtained for the cambium of various tree species. While the auxin gradient theory is based on a plethora of descriptive and pharmacological experiments, in recent years, auxin function on wood formation has been underpinned by molecular and functional data. Here, we review the latest progress in understanding the role of auxin in wood formation and discuss how auxin concentration gradients could be established and interpreted in wood-forming tissues.