This paper reviews present theory of the structure and the dynamics of the Earth's magnetotail. Since dynamical phenomena occur on different length and time-scales it seems appropriate to begin with comments on plasma models. Then it is argued that any successful theory of the rapid dynamic processes observed in the magnetotail requires a detailed analysis of the quiet states and their slow evolution. Accordingly, we present a rather detailed description of corresponding theoretical work. A major result is that under conditions that seem to be realistic for periods of southward-pointing interplanetary magnetic field, extended magnetotail flux tubes must evolve in time such that energy is slowly built up in the tail. Magnetic reconnection at a distant neutral line seems to be a natural cause of the high speed plasma flows observed near the boundary of the plasma sheet. These results then raise the problem of stability of the magnetotail. It is argued that non-ideal plasma processes must be involved in any instability mechanism that is able to explain the onset of the fast dynamic phases. Since the nature of the relevant non-ideal effect (or effects) is not yet identified, several possibilities are discussed, namely, ion-inertial effects, resistive magnetohydrodynamic evolution and non-resistive relaxation. It is an interesting fact that all three approaches, although substantially different, lead to qualitatively similar unstable magnetic field patterns. Two of the major aspects involved are magnetic reconnection and the formation of plasmoids. On the basis of the theoretical results available both for quiet and dynamic states, a unified picture emerges is able to explain major observational features in terms of physical processes.