Why are some cities specialised and others diversified? What are the advantages and disadvantages of urban specialisation and diversity? To what extent does the structure of cities, and the activities of firms and people in them, change over time? How does the sectoral composition of cities influence their evolution? To answer these and related questions, we first distil some key stylised facts fromthe empirical literature on cities and the composition of their activities. We then turn to a review of different theories looking at such issues, and study the extent to which these theories contribute to the understanding of the empirical regularities.