A companion diagnostic is a diagnostic test that provides information essential for the safe and effective use of a corresponding therapeutic product. To obtain marketing approval, the companion diagnostic must demonstrate acceptable analytical and clinical performance. Companion diagnostic regulations are intended to protect patients by ensuring quality and consistency of treatment-guiding biomarker testing in clinical trials and clinical practice. However, current regulations have had unintended negative consequences relating to innovation, implementation and accessibility of precision medicine, increasing complexity and cost burden as well as inhibiting development of novel diagnostics and biomarker-targeted therapeutics. We propose a range of practical solutions to these challenges, advocating that regulators, pharmaceutical companies, molecular pathologist groups and diagnostics companies work together to increase flexibility and promote diagnostic innovation, whilst maintaining high quality diagnostic testing to ensure all patients get the most appropriate treatments.