Electrorheological (ER) fluids composed of alpha-Fe2O3 (hematite) particles suspended in silicone oil are studied in this work. The theological response has been characterized as a function of field strength, shear rate and volume fraction. Rheological tests under DC electric fields elucidated the influence of the electric field strength, E, and volume fraction, phi, on the field-dependent yield stress, tau(y), It was found that this quantity scales with E and phi with a linear and parabolic dependence, respectively. The viscosities of electrified suspensions were found to increase by several orders of magnitude as compared to the unelectrified suspension at low shear rates, although at high-shear rates hydrodynamic effects become dominant and no effects of the electric field on the viscosity are observed. The work is completed with the analysis of microscopic observations of the structure acquired by the ER fluid upon application of a constant electric field. Electrohydrodynamic convection is found to be the origin of the ER response rather than the commonly admitted particle fibrillation. This fact can provide an explanation to the relationship between yield stress and electric field strength as well as the pattern of periodic structures observed in the measurement geometries. (C) 2004 Elsevier B.V. All rights reserved.