The evolution of molecules, developmental circuits, and new species are all characterized by the accumulation of incompatibilities between ancestors and descendants. When specific interactions between components are necessary at any of these levels, this requires compensatory coevolution. Theoretical treatments of compensatory evolution that only consider the endpoints predict that it should be rare because intermediate states are deleterious. However, empirical data suggest that compensatory evolution is common at all levels of molecular interaction. A general solution to this paradox is provided by plausible neutral or nearly neutral intermediates that possess informational redundancy. These intermediates provide an evolutionary path between coadapted allelic combinations. Although they allow incompatible end points to evolve, at no point was a deleterious mutation ever in need of compensation. As a result, what appears to be compensatory evolution may often actually be "pseudocompensatory." Both theoretical and empirical studies indicate that pseudocompensation can speed the evolution of intergenic incompatibility, especially when driven by adaptation. However, under strong stabilizing selection the rate of pseudocompensatory evolution is still significant. Important examples of this process at work discussed here include the evolution of rRNA secondary structures, intra- and inter-protein interactions, and developmental genetic pathways. Future empirical work in this area should focus on comparing the details of intra- and intergenic interactions in closely related organisms.