The analysis of the effects of diversification on firms' performance is one of the issues which has aroused more interest in recent economic research. Therefore, it has originated a broad number of studies, specially in Strategic Management. However, there are still no definitive answers to this question. Very different theoretical perspectives have been applied and the empirical evidence is not conclusive. The purpose of this paper is to review these different theories and the main empirical studies concerning the relationship between diversification and firms' performance.