To assess the effects of correlated abilities on test characteristics, and to explore the effects of correlated abilities on the use of a multidimensional item response theory model which does not explicitly account for such a correlation, two tests were constructed. One had two relatively unidimensional subsets of items, the other had all two-dimensional items. For each test, response data were generated according to a multidimensional two-parameter logistic model using four groups of 2000 simulated examinees, differing in the degree of inter-dimension ability correlation. To evaluate the effects on observed test characteristics, the simulated response data were analyzed using item analysis and factor analysis techniques. To assess the effects on the use of the multidimensional model, the model parameters were estimated, and compared to the true parameters. Results of the study indicated that the presence of correlated abilities has important implications. It is necessary to consider latent item structure as well as latent ability structure in test construction and analysis. Use of multidimensional item response theory models that do not explicitly account for correlated abilities may result in misinterpretation of the underlying dimensions. Research is needed to determine the nature of the misinterpretation and to perhaps develop an item response theory analogue to factor rotation. (Author/BS)