It is proposed in this paper that there are two types of phonemic variations, and that each bears a different implication for phonological change. The one whose underlying representation is the form as it occurs in isolation (isolated form) is considered to be an innovation. The other one whose underlying representation is the form as it occurs in non-isolation environment (connected form) is considered to be retention. It is also suggested that, synchronically, an appropriate solution to the problem of phonemic variation can shed light on both the interpretation of historical changes and the internal reconstruction of previons stages of a language. Several examples from Chinese and Austronesian languages have been given to support the views proposed here. In the concluding section, an application of the views presented in this paper is illustrated by a discussion of the original values of Chin-chiang tones.