Acute-on-chronic liver failure (ACLF) is a distinct clinical entity and differs from acute liver failure and decompensated cirrhosis in timing, presence of acute precipitant, course of disease and potential for unaided recovery. The definition involves outlining the acute and chronic insults to include a homogenous patient group with liver failure and an expected outcome in a specific timeframe. The pathophysiology of ACLF relates to persistent inflammation, immune dysregulation with initial wide-spread immune activation, a state of systematic inflammatory response syndrome and subsequent sepsis due to immune paresis. The disease severity and outcome can be predicted by both hepatic and extrahepatic organ failure(s). Clinical recovery is expected with the use of nucleoside analogues for hepatitis B, and steroids for severe alcoholic hepatitis and, possibly, severe autoimmune hepatitis. Artificial liver support systems help remove toxins and metabolites and serve as a bridge therapy before liver transplantation. Hepatic regeneration during ongoing liver failure, although challenging, is possible through the use of growth factors. Liver transplantation remains the definitive treatment with a good outcome. Pre-emptive antiviral agents for hepatitis B before chemotherapy to prevent viral reactivation and caution in using potentially hepatotoxic drugs can prevent the development of ACLF.