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The word Eskimo derives from phrases that Algonquin tribes used for their northern neighbors. The Inuit and Yupik peoples generally do not use it to refer to themselves. The governments in Canada and Greenland have ceased using it in official documents.

The most commonly accepted etymological origin of the word "Eskimo" is derived by Ives Goddard at the Smithsonian Institution, from the Innu-aimun (Montagnais, see Algonquian languages) word ayas̆kimew meaning "a person who laces a snowshoe", "snowshoe-netter" or "to net snowshoes" and is related to "husky" (a breed of dog), and does not have a pejorative meaning in origin. The word assime·w means "she laces a snowshoe" in Montagnais. Montagnais speakers refer to the neighbouring Mi'kmaq people using words that sound like eskimo.

Some people consider Eskimo derogatory because it is popularly perceived to mean "eaters of raw meat" in Algonquian languages common to people along the Atlantic coast. One Cree speaker suggested the original word that became corrupted to Eskimo might have been askamiciw (which means "he eats it raw"); the Inuit are referred to in some Cree texts as askipiw (which means "eats something raw").

In Canada and Greenland, the term "Eskimo" is predominantly seen as pejorative and has been widely replaced by the term "Inuit" or terms specific to a particular group or community. This has resulted in a trend whereby some Canadians and Americans believe that they should not use the word "Eskimo" and use the Canadian word "Inuit" instead, even for Yupik people. Section 25 of the Canadian Charter of Rights and Freedoms and section 35 of the Canadian Constitution Act of 1982, recognized the Inuit as a distinctive group of Aboriginal peoples in Canada.

While Inuit can be accurately applied to all of the Eskimo peoples in Canada and Greenland, that is not true in Alaska and Siberia. In Alaska the term Eskimo is commonly used, because it includes both Yupik and Iñupiat. Inuit is not accepted as a collective term and it is not used specifically for Iñupiat (although they are related to the Canadian Inuit peoples).

In 1977, the Inuit Circumpolar Conference (ICC) meeting in Utqiagvik, Alaska, officially adopted Inuit as a designation for all circumpolar native peoples, regardless of their local view on an appropriate term. As a result, the Canadian government usage has replaced the (locally) defunct term Eskimo with Inuit (Inuk in singular). The preferred term in Canada's Central Arctic is Inuinnaq, and in the eastern Canadian Arctic Inuit. The language is often called Inuktitut, though other local designations are also used. Despite the ICC's 1977 decision to adopt the term Inuit, this was never accepted by the Yupik peoples, who likened it to calling all Native American Indians Navajo simply because the Navajo felt that that's what all tribes should be called.

The Inuit of Greenland refer to themselves as "Greenlanders" and speak the Greenlandic language.

Because of the linguistic, ethnic, and cultural differences between Yupik and Inuit peoples, it seems unlikely that any umbrella term will be acceptable. There has been some movement to use Inuit, and the Inuit Circumpolar Council, representing a circumpolar population of 150,000 Inuit and Yupik people of Greenland, Northern Canada, Alaska, and Siberia, in its charter defines Inuit for use within that ICC document as including "the Inupiat, Yupik (Alaska), Inuit, Inuvialuit (Canada), Kalaallit (Greenland) and Yupik (Russia)."

In 2010, the ICC passed a resolution in which they implored scientists to use "Inuit" and "Paleo-Inuit" instead of "Eskimo" or "Paleo-Eskimo". American linguist Lenore Grenoble has explicitly deferred to this resolution and used "Inuit–Yupik" instead of "Eskimo" with regards to the language branch. In a 2015 commentary in the journal Arctic, Canadian archaeologist Max Friesen argued fellow Arctic archaeologists should follow the ICC and use "Paleo-Inuit" instead of "Paleo-Eskimo".

But, in Alaska, the Inuit people refer to themselves as Iñupiat, plural, and Iñupiaq, singular (their North Alaskan Inupiatun language is also called Iñupiaq). They do not commonly use the term Inuit. In Alaska, Eskimo is in common usage.

Alaskans also use the term Alaska Native, which is inclusive of all Eskimo, Aleut and other Native American people of Alaska. It does not apply to Inuit or Yupik people originating outside the state. The term Alaska Native has important legal usage in Alaska and the rest of the United States as a result of the Alaska Native Claims Settlement Act of 1971.

The term "Eskimo" is also used in linguistic or ethnographic works to denote the larger branch of Eskimo–Aleut languages, the smaller branch being Aleut.

Under U.S. and Alaskan law (as well as the linguistic and cultural traditions of Alaska), "Alaska Native" refers to all indigenous peoples of Alaska. This includes not only the Iñupiat (Alaskan Inuit) and the Yupik, but also groups such as the Aleut, who share a recent ancestor, as well as the largely unrelated indigenous peoples of the Pacific Northwest Coast and the Alaskan Athabaskans. As a result, the term Eskimo is still in use in Alaska. Alternative terms, such as Inuit-Yupik, have been proposed, but none has gained widespread acceptance.