Background: Atopic dermatitis is the most common chronic inflammatory skin disorder, affecting up to 20% of children and 10% of adults in industrialized countries. This highly debilitating condition poses a considerable burden to both the individual and society at large. The pathophysiology of atopic dermatitis is complex, encompassing both genetic and environmental risk factors. Methods: This is a narrative review based on a systematic literature search. Conclusions: Dysregulation of innate and adaptive immunity plays a key role; however, recent epidemiological, genetic and molecular research has focused interest on skin barrier dysfunction as a common precursor and pathological feature. Current understanding of the aetiology of atopic dermatitis highlights disruption of the epidermal barrier leading to increased permeability of the epidermis, pathological inflammation in the skin, and percutaneous sensitization to allergens. Thus, most novel treatment strategies seek to target specific aspects of the skin barrier or cutaneous inflammation. Several studies have also shown promise in preventing atopic dermatitis, such as the early use of emollients in high-risk infants. This may have broader implications in terms of halting the progression to atopic comorbidities including food allergy, hay fever and asthma.