Abstract Background The optimal clinical management of oral precancer remains uncertain. We investigated the natural history of oral leukoplakia, the most common oral precancerous lesion, to estimate the relative and absolute risks of progression to cancer, the predictive accuracy of a clinician’s decision to biopsy a leukoplakia vis-à-vis progression, and histopathologic predictors of progression. Methods We conducted a retrospective cohort study (1996–2012) of patients with oral leukoplakia (n = 4886), identified using electronic medical records within Kaiser Permanente Northern California. Among patients with leukoplakia who received a biopsy (n = 1888), we conducted a case-cohort study to investigate histopathologic predictors of progression. Analyses included indirect standardization and unweighted or weighted Cox regression. Results Compared with the overall Kaiser Permanente Northern California population, oral cancer incidence was substantially elevated in oral leukoplakia patients (standardized incidence ratio = 40.8, 95% confidence interval CI = 34.8 to 47.6; n = 161 cancers over 22 582 person-years). Biopsied leukoplakias had a higher oral cancer risk compared with those that were not biopsied (adjusted hazard ratio = 2.38, 95% CI = 1.73 to 3.28). However, to identify a prevalent or incident oral cancer, the biopsy decision had low sensitivity (59.6%), low specificity (62.1%), and moderate positive–predictive value (5.1%). Risk of progression to oral cancer statistically significantly increased with the grade of dysplasia; 5-year competing risk-adjusted absolute risks were: leukoplakia overall = 3.3%, 95% CI = 2.7% to 3.9%; no dysplasia = 2.2%, 95% CI = 1.5% to 3.1%; mild-dysplasia = 11.9%, 95% CI = 7.1% to 18.1%; moderate-dysplasia = 8.7%, 95% CI = 3.2% to 17.9%; and severe dysplasia = 32.2%, 95% CI = 8.1%–60.0%. Yet 39.6% of cancers arose from biopsied leukoplakias without dysplasia. Conclusions The modest accuracy of the decision to biopsy a leukoplakia vis-à-vis presence or eventual development of oral cancer highlights the need for routine biopsy of all leukoplakias regardless of visual or clinical impression. Leukoplakia patients, particularly those with dysplasia, need to be closely monitored for signs of early cancer.