The terms "Covenantal Theology" and "Dispensational Theology" refer to two different ways of interpreting the biblical record of salvation history.
Covenantal Theology is typical of Reformed theologians. This includes the Reformed and Christian Reformed, the Presbyterian, the Anglican (or Episcopal), and to some extent, the Lutheran. The Catholics also recognize the same approximate divisions of scriptural history, while differing on the question of man's responsibility in the covenant of grace. Taken together then, the Covenantal view must be considered by far the predominant view.
"Covenants" are contracts between two parties. Covenant Theology normally speaks of three main covenants in salvation history. Covenant theology tends to emphasize the unity of God's working with mankind.
- The Covenant of Redemption (this covenant is optional; it occurred before creation):
- The Son renders perfect obedience unto death, as promised to the Father.
- The Father promises to the Son:
- all the Son's needs will be met;
- the Holy Spirit will be given to the church;
- salvation in all of its phases will be given to all believers;
- the Son will be exalted and glorified.
- The Covenant of Works (from creation until the fall):
- Man's conditions: Adam must obey God's commands.
- God rewards obedience with eternal life, and punishes disobedience with death.
- The Covenant of Grace (from the fall until the second advent):
- Man's conditions: saving faith in God's promise, issuing in obedience to God's commands.
- God's response: salvation in all of its phases to the believer through the substitutionary work of his Son.
The Dispensational view is of more recent origin, arising from the evangelical awakening in America and England. Through the work of Jesse Penn-Lewis, Charles Spurgeon, T. Austin Sparks, J. N. Darby (who is given credit for formally bringing the view to light), Dwight Moody, C. I. Scofield (who included it in the Scofield Bible), Watchman Nee, Lewis Sperry Chafer, and John Walvoord, this view has become widespread and popular today. It is the view of most Pentecostals, Brethren, many Baptists, and most independent Bible churches.
"Dispensations" refer to economies, or different ways in which God works with man in salvation history. Each dispensation begins with an offer by God and ends with failure by man and a period of divine judgement. Dispensational theology tends to emphasize the diversity of ways in which God works with mankind.
- Innocence, or Untested Holiness (Genesis 1-3):
- God offers man eternal life for obedience.
- Man rebels, and is expelled from the Garden of Eden.
- Conscience (Genesis 4-6):
- God offers to govern man through his conscience.
- Man sears his conscience, and God brings the universal flood.
- Government (Genesis 7-11):
- God offers to govern man through civil government (Genesis 9:6).
- Man corrupts civil government, and God brings the confusion of tongues and scatters man.
- Promise (Genesis 12 -- Millennial Kingdom):
- God promises to bless Abraham and his descendants, and all nations through them.
- Jacob's sons apostatize and God brings them into slavery in Egypt.
- Law (Exodus 20 -- Millennial Kingdom):
- God promises to grant Israel the promises he made to Abraham conditional to their obedience to his Law.
- Israel apostatizes, undergoes exile and dispersion, and is finally purified through the Great Tribulation.
- Grace or The Church Age (Pentecost -- Rapture):
- God temporarily suspends working through Israel as his chosen nation and offers to work through all believers in Jesus.
- The church apostatizes and is judged in the Great Tribulation after true believers are rescued through the Rapture.
- Millennial Kingdom (Revelation 20):
- God fulfills all of his promises to national Israel after the Second Coming of Jesus.
- Satan ignites a rebellion against Jesus, which God terminates and then judges all men at the Great White Throne.
 Dispensational theologians, of course, do not accept their view as a theological innovation. Rather, they posit Jesus, the apostles and the very early church all held a basically "dispensational" view (cf. Matthew 24; Luke 21; Mark 13; Romans 9-11; 1 Thessalonians 4-5; 2 Thessalonians 2; etc.).