The literature review examines the issue of whether categorical differentiation and placement of mentally retarded and learning disabled students is educationally warranted. First, the two conditions are defined; next, a comparison between the two on psychological, behavioral-social, and educational characteristics usually ascribed to children so labelled is made; and finally, a review of current educational and placement practices used with each group is discussed. Noted is controversy concerning the exclusion of mental retardation from the learning disabilities definition. A review of terminology changes in the area of learning disabilities since 1947 is offered. Definite differences between the learning disabled and the educable mentally retarded on the academic dimension but more similarities than differences on the psychological and behavioral-social dimensions have been identified. Placement practices include special class categorical classes in the 1960's to the currently more common resource room placement with some cross-categorical programs for the mildly handicapped. It is concluded that individual differences among children are more important than intergroup differences but that there is not enough evidence to eliminate all categorical programs. Fifty-six references are listed. (DB)