The “second method” of Lyapunov is the most general approach currently in the theory of stability of dynamic systems. After a rigorous exposition of the fundamental concepts of this theory, applications are made to (a) stability of linear stationary, linear nonstationary, and nonlinear systems; (b)estimation of transient behavior; (c) control-system optimization; (d) design of relay servos. The discussion is essentially self-contained, with emphasis on the thorough development of the principal ideas and mathematical tools. Only systems governed by differential equations are treated here. Systems governed by difference equations are the subject of a companion paper.