Microsatellite instability (MSI) occurs in most tumours from patients with hereditary non-polyposis colorectal cancer (HNPCC) and in around 17% of sporadic colorectal cancers. Germline defects in mismatch repair (MMR) genes are responsible for the majority of large HNPCC families, with hMSH2 accounting for at least 50%. MMR gene defects also occur in a small proportion of sporadic colorectal tumours with MSI. Here we report a systematic analysis of mismatch repair deficiency in 215 Scottish patients with sporadic colorectal tumours. We found that 16.4% of tumours exhibited MSI; survival analysis by Cox proportional hazards method showed a substantial survival advantage for patients with tumours showing MSI, independent of other prognostic factors. Tumours with MSI were screened for hMSH2 mutations and although 61% were found to have alterations, of these only 1/24 was exonic. The majority of these changes were reductions in length at intronic mononucleotide tracts and we postulate that these alterations are the result of a genetic defect elsewhere, although they may compromise hMSH2 function as a second step in tumourigenesis. Our findings indicate that instability confers an improved prognosis in colorectal cancer and, despite the fact that these two groups of tumours share similar biological characteristics, the genetic basis of HNPCC and sporadic colorectal cancer with MSI is different.