The human gut microbiome has emerged as a major player in human health and disease. The liver, as the first organ to encounter microbial products that cross the gut epithelial barrier, is affected by the gut microbiome in many ways. Thus, the gut microbiome might play a major part in the development of liver diseases. The common end stage of liver disease is decompensated cirrhosis and the further development towards acute-on-chronic liver failure (ACLF). These conditions have high short-term mortality. There is evidence that translocation of components of the gut microbiota, facilitated by different pathogenic mechanisms such as increased gut epithelial permeability and portal hypertension, is an important driver of decompensation by induction of systemic inflammation, and thereby also ACLF. Elucidating the role of the gut microbiome in the aetiology of decompensated cirrhosis and ACLF deserves further investigation and improvement; and might be the basis for development of diagnostic and therapeutic strategies. In this Review, we focus on the possible pathogenic, diagnostic and therapeutic role of the gut microbiome in decompensation of cirrhosis and progression to ACLF.