MS-CHAP is the Microsoft version of the Challenge-handshake authentication protocol, CHAP. The protocol exists in two versions, MS-CHAPv1 (defined in RFC 2433) and MS-CHAPv2 (defined in RFC 2759). MS-CHAPv2 was introduced with Windows NT 4.0 SP4 and was added to Windows 98 in the "Windows 98 Dial-Up Networking Security Upgrade Release" and Windows 95 in the "Dial Up Networking 1.3 Performance & Security Update for MS Windows 95" upgrade. Windows Vista dropped support for MS-CHAPv1.
Compared with CHAP, MS-CHAP:
MS-CHAPv2 provides mutual authentication between peers by piggybacking a peer challenge on the Response packet and an authenticator response on the Success packet.
Several weaknesses have been found in MS-CHAPv2, some of which severely reduce the complexity of brute-force attacks making them feasible with modern hardware.