Benefits to the nation as well as problems involved in cooperative research relationships between industry and universities are considered. The background and history of the relationship between universities and industry, including the changing roles and objectives of the participants, are covered. Trends in the support and performance of basic research between the 1950s and the present are summarized. These trends show the increased role of government and the shift of expenditures by industry from basic research to applied research and development. The consequences of lack of research cooperation between universities and industry are noted. The relationship between universities, industry, and government is defined through consideration of fundamental principles that guide their actions, the benefits and hazards to each participant arising from the cooperative research relationship, and the roles and responsibilities of each participant. Selected alternatives for university-industry research relationship, including recent new initiatives, are described. Government financial incentives for industrial support of university research are also considered. (SW)