|Abstract:||This paper argues that exceptions and other instances of morpheme-specific phonology are best analyzed in Optimality Theory (OT) in terms of lexically indexed markedness and faithfulness constraints. This approach is shown to capture locality restrictions, distinctions between exceptional and truly impossible patterns, distinctions between blocking and triggering, and distinctions between variation and exceptionality. It is contrasted with other OT analyses of exceptions, in particular those that disallow lexically indexed markedness constraints and those that invoke lexically specified rankings (that is, cophonologies). The data discussed are from Assamese, Finnish and Yine (formerly Piro). A learnability account of the genesis of lexically indexed constraints is also provided, in which indexation is used to resolve inconsistency detected by Tesar and Smolensky's (1998, 2000) Recursive Constraint Demotion algorithm.