According to a widespread view the lexicon is a kind of appendix to the grammar, whose function is to list what is unpredictable and irregular about the words of a language. In more recent studies it has been acquiring a rich internal organization of its own and is becoming recognized as the site of pervasive grammatical regularities. The particular approach to the lexicon that I will assume in this paper comes out of this trend, integrating several ideas from work on both morphology and phonology in the seventies. I shall begin by outlining the central assumptions and their motivation, and proceed to a series of issues raised by this framework which,have to do with the proper formulation of word—formation processes.