This paper contains the description of an inhomogeneous, multi-compartmental volume conductor model which is in use in our group. Although initially developed for the study of the ECG, it has been found to serve equally well for simulating the magnetocardiogram (MCG), the forward problem, and as a basis for source analysis of the MCG, the inverse problem. For both problems some illustrative examples are included demonstrating the necessity of using an inhomogeneous volume conductor model of the torso, having realistic--preferably tailored--geometry. A simple inverse procedure, based on correlation techniques, is included for the solution of the problem of source localization when an accurate description of the inhomogeneous volume conductor is available.