We investigate a class of minimal sequences on a finite alphabet Ak = {1,2,...,k} having (k - 1)n + 1 distinct subwords of length n. These sequences, originally defined by P. Arnoux and G. Rauzy, are a natural generalization of binary Sturmian sequences. We describe two simple combinatorial algorithms for constructing characteristic Arnoux-Rauzy sequences (one of which is new even in the Sturmian case). Arnoux-Rauzy sequences arising from fixed points of primitive morphisms are characterized by an underlying periodic structure. We show that every Arnoux-Rauzy sequence contains arbitrarily large subwords of the form V^2+ε and, in the Sturmian case, arbitrarily large subwords of the form V^3+ε. Finally, we prove that an irrational number whose base b-digit expansion is an Arnoux-Rauzy sequence is transcendental.