The slow dispersion of non-linear water waves is studied by the general theory developed in an earlier paper (Whitham 1965b). The average Lagrangian is calculated from the Stokes expansion for periodic wave trains in water of arbitrary depth. This Lagrangian can be used for the various applications described in the above reference. In this paper, the crucial question of the ‘type’ of the differential equations for the wave-train parameters (local amplitude, wave-number, etc.) is established. The equations are hyperbolic or elliptic according to whether kh0 is less than or greater than 1.36, where k is the wave-number per 2π and h0 is the undisturbed depth. In the hyperbolic case, changes in the wave train propagate and the characteristic velocities give generalizations of the linear group velocity. In the elliptic case, modulations in the wave train grow exponentially and a periodic wave train will be unstable in this sense; thus, periodic wave trains on water will be unstable if kh0 > 1·36, The instability of deep-water waves, kh0 > 1·36, was discovered in a different way by Benjamin (1966). The relation between the two approaches is explained.