In hardwoods such as Eucalyptus spp., xylem (wood) is a heterogeneous tissue consisting of multiple cell types. As such, xylem development involves multiple complex interactions. To describe and understand xylem development, and ultimately predict the resultant wood properties, a process-based approach to modelling wood property variation is potentially very useful. In this paper, a new model (CAMBIUM), which incorporates concepts of these processes, is described. CAMBIUM predicts how wood density and fibre and vessel anatomical properties vary from pith-to-bark at a daily time step as a function of changing environmental conditions and a set of simulated physiological processes. Simulations from an existing process-based model of stand development (CABALA) are used as inputs. A key feature of CAMBIUM is a model of the interaction between different xylem cell types. Some weaknesses were identified in the ability of the model to simulate vessel spatial patterns and frequencies, emphasizing the complexities inherent in this aspect of angiosperm wood formation. The model was, however, able to provide realistic estimates of short-term variation and temporal ranges in eucalypt fibre diameter and secondary wall development and wood density.