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Tumor budding (TB) is a strong biomarker of poor prognosis in colorectal cancer and other solid cancers. TB is defined as isolated single cancer cells or clusters of up to four cancer cells at the invasive tumor front. In areas with a large inflammatory response at the invasive front, single cells and cell clusters surrounding fragmented glands are observed appearing like TB. Occurrence of these small groups is referred to as pseudobudding (PsB), which arises due to external influences such as inflammation and glandular disruption. Using a combination of orthogonal approaches, we show that there are clear biological differences between TB and PsB. TB is representative of active invasion by presenting features of epithelial-mesenchymal transition and exhibiting increased deposition of extracellular matrix within the surrounding tumor microenvironment (TME), whereas PsB represents a reactive response to heavy inflammation where increased levels of granulocytes within the surrounding TME are observed. Our study provides evidence that areas with a strong inflammatory reaction should be avoided in the routine diagnostic assessment of TB. © 2023 The Authors. The Journal of Pathology published by John Wiley & Sons Ltd on behalf of The Pathological Society of Great Britain and Ireland., (© 2023 The Authors. The Journal of Pathology published by John Wiley & Sons Ltd on behalf of The Pathological Society of Great Britain and Ireland.)