An efficient incremental iterative approach for differentiating advanced flow codes is successfully demonstrated on a two-dimensional inviscid model problem. The method employs the reverse-mode capability of the automatic differentiation software tool ADIFOR 3.0 and is proven to yield accurate first-order aerodynamic sensitivity derivatives. A substantial reduction in CPU time and computer memory is demonstrated in comparison with results from a straightforward, black-box reverse-mode applicaiton of ADIFOR 3.0 to the same flow code. An ADIFOR-assisted procedure for accurate second-rder aerodynamic sensitivity derivatives is successfully verified on an inviscid transonic lifting airfoil example problem. The method requires that first-order derivatives are calculated first using both the forward (direct) and reverse (adjoinct) procedures; then, a very efficient noniterative calculation of all second-order derivatives can be accomplished. Accurate second derivatives (i.e., the complete Hesian matrices) of lift, wave drag, and pitching-moment coefficients are calculated with respect to geometric shape, angle of attack, and freestream Mach number.