Classical Sanskrit is well known for making extensive use of compounding. I argue, within a lexicalist framework, that the major rules of compounding in Sanskrit can be most appropriately characterized in syntactic, not morphological, terms. That is, Classical Sanskrit ‘compounds’ are in fact very often syntactic phrases. The syntactic analysis proposed captures the fact that compound formation is closer to a morphological process than other aspects of syntax, and so permits some acknowledgment of the gradient nature of the word–phrase divide, even within a strictly lexicalist theory.