Diarrhoea is a major impediment to profitable sheep production in many countries as it predisposes animals to blowfly strike and contaminates wool and meat carcasses. While it is accepted that nematode parasites are a major cause of diarrhoea in grazing animals, less is known about what facets of the host-parasite relationship lead to diarrhoea and what the most appropriate control strategies are. In this review, the relationship between gastrointestinal nematode infection and diarrhoea is discussed and it is concluded that in many cases, particularly in immunologically mature sheep, diarrhoea is not due to parasite infection per se but rather due to immunopathological processes. Mechanisms that lead to faecal softening in immune sheep are considered, and the question addressed as to whether anthelmintic treatment and selective breeding of naturally parasite-resistant sheep will effectively reduce the occurrence of diarrhoea.