Flat epithelial atypia is a presumably neoplastic alteration of terminal duct-lobular units that is characterized by the replacement of the native luminal epithelium by ductal cells demonstrating low-grade cytologic atypia. The atypical cells maintain a "flat" pattern of growth without evidence of architectural atypicality. Morphologic, immunohistochemical, and molecular investigations support that flat epithelial atypia represents an early step in the evolution of low-grade ductal carcinomas. It is frequently seen in association with atypical ductal hyperplasia, low-grade ductal carcinoma in situ, invasive tubular carcinoma, and lobular neoplasia. The risk for subsequent breast carcinoma remains to be defined, but flat epithelial atypia likely represents a nonobligate precursor with an extended time course to progression. Certain benign alterations may superficially mimic its appearance; careful attention to cytologic and architectural characteristics can help one distinguish these unrelated entities from flat epithelial atypia.