Diagnosis of focal lung disease which, by definition, is confined to one distinct area of the lung is one of the most common clinical scenarios encountered on chest imaging studies. The first step in the diagnostic approach on CT studies is determination of the primary area of involvement: airway, vessel, parenchyma, or pleura. For focal lung disease localized in the lung parenchyma, the differential diagnosis is largely based upon its primary manifestation using the following morphologic groups: nodule/mass; abnormalities of lung attenuation; and linear opacities, septal or non-septal. The differential diagnosis can be further refined by sequential evaluation initially directed to the area of involvement to determine potential distinguishing characteristics followed by completion of a “satisfaction of search” to note important positive and negative findings. Comparison with prior imaging studies and integration of patient demographics and past medical history are important to allow an accurate and relevant list of diagnostic possibilities. To minimize the likelihood of errors associated with failed heuristics and cognitive biases, radiologists should mentally structure their differential diagnosis by categories of disease with thoughtful selection and prioritization of the top three categories and the two to three most likely entities within each categorical group.