In areas of large lateral variations in velocity, stacking velocities computed on the basis of hyperbolic moveout can differ substantially from the actual root mean square (rms) velocities. This paper addresses the problem of obtaining rms or migration velocities from stacking velocities in such areas. The first-order difference between the stacking and the vertical rms velocities due to lateral variations in velocity are shown to be related to the second lateral derivative of the rms slowness (1/v rms ). Approximations leading to this relation are straight raypaths and that the vertical rms slowness to a given interface can be expressed as a second-order Taylor series expansion in the midpoint direction. Under these approximations, the effect of the first lateral derivative of the slowness on the traveltime is negligible.The linearization of the equation relating the stacking and true velocities results in a set of equations whose inversion is unstable. Stability is achieved, however, by adding a nonphysical fourth derivative term which affects only the higher spatial wavenumbers, those beyond the lateral resolution of the lateral derivative method (LDM). Thus, given the stacking velocities and the zero-offset traveltime to a given event as a function of midpoint, the LDM provides an estimate of the true vertical rms velocity to that event with a lateral resolution of about two mute zones or cable lengths. The LDM is applicable when lateral variations of velocity greater than 2 percent occur over the mute zone. At variations of 30 percent or greater, the internal assumptions of the LDM begin to break down.Synthetic models designed to test the LDM when the different assumptions are violated show that, in all cases, the results are not seriously affected. A test of the LDM on field data having a lateral velocity variation caused by sea floor topography gives a result which is supported by depth migration.