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Borderline personality disorder (BPD) and bipolar disorder (types I and II) are frequently confused because of their symptomatic overlap. Although affective instability is a prominent feature of each, the pattern is entirely different. BPD is characterized by transient mood shifts that occur in response to interpersonal stressors, whereas bipolar disorder is associated with sustained mood changes. These disorders can be further distinguished by comparing their phenomenology, etiology, family history, biological studies, outcome, and response to medication. Their distinction is of great clinical importance because misdiagnosis can deprive the patient of potentially effective treatment, whether it is psychotherapy for BPD or medication for bipolar disorder. On the basis of a comprehensive literature review, guidelines for differential diagnosis are suggested, and priorities for further research are recommended.