Major depressive disorder (MDD) has until recently been conceptualized as an episodic disorder associated with 'chemical imbalances' but no permanent brain changes. Evidence has emerged in the past decade that MDD is associated with small hippocampal volumes. This paper reviews the clinical and biological correlates of small hippocampal volumes based on literature searches of PubMed and EMBASE and discusses the ways in which these data force a re-conceptualization of MDD. Preclinical data describe the molecular and cellular effects of chronic stress and antidepressant treatment on the hippocampus, providing plausible mechanisms through which MDD might be associated with small hippocampal volumes. Small hippocampal volumes are associated with poor clinical outcome and may be a mechanism through which MDD appears to be a risk factor for Alzheimer's disease. The pathways through which stress may be linked to MDD, the emergence of chronicity or treatment resistance in MDD and the association between MDD and memory problems may be at least partially understood by dissecting the association with depression and changes in the hippocampus. MDD must be re-conceived as a complex illness, associated with persistent morphological brain changes that are detectable before illness onset and which may be modified by clinical and treatment variables.