The newly developed simulation method known as Stokesian dynamics is used to investigate the rheological behaviour of concentrated suspensions. Both the detailed microstructure (e.g. pair-distribution function) and the macroscopic properties are determined for a suspension of identical rigid spherical particles in a simple shear flow. The suspended particles interact through both hydrodynamic and non-hydrodynamic forces. For suspensions with purely hydrodynamic forces, the increase in the suspension viscosity with volume fraction ϕ is shown to be caused by particle clustering. The cluster formation results from the lubrication forces, and the simulations of a monolayer of spheres show a scaling law for the cluster size: lc ∼ [1 − (ϕ/ϕm)½]−1, where ϕm is the maximum volume fraction that can shear homogeneously. The simulation results suggest that the suspension viscosity becomes infinite at the percolation-like threshold ϕm owing to the formation of an infinite cluster. The predicted simulation viscosities are in very good agreement with experiment. A suspension with short-range repulsive interparticle forces is also studied, and is seen to have a non-Newtonian rheology. Normal-stress differences arise owing to the anisotropic local structure created by the interparticle forces. The repulsive forces also reduce particle clustering, and as a result the suspension is shear-thickening.