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Environmentally acceptable hydraulic fluids are increasingly specified for use in hydraulic equipment working in environmentally sensitive areas. This paper describes the research methodology that was used to develop a high performance synthetic, environmentally acceptable hydraulic fluid. Product development consisted of: (1) setting the standards for environmental acceptability, (2) screening base fluids and additives for technical performance and minimal impact on the environment, (3) designing a formulation to meet these targets and (4) field experience. Test results demonstrating the high performance and low environmental impact of the new fluid are discussed. A key challenge when formulating an environmentally acceptable hydraulic fluid is to achieve satisfactory oxidation stability. The absence of a suitable oxidation stability test, which can differentiate between environmentally acceptable fluids and correlate with field performance, has been an issue for several years.