In this paper, methods of defining heading are enumerated and the limitations of magnetic and gyroscopic devices are analysed in detail. Particular attention is paid to the development of the rotated race principle which is likely to be responsible for a large improvement in the basic azimuth gyro. The gyro-magnetic combination is scrutinized and the errors inherent in this compass system are classified. The possibility and consequent effect of diminishing certain categories of error are presented. The current position is summarized and an attempt is made to suggest possible future trends. The authors are, respectively, with Smiths Aircraft Instruments and the Sperry Gyroscope Company.