Of the three crucial sources of knowledge accepted in common by all the orthodox schools (perception, inference, and verbal testimony), the Charvakas accepted only perception as the valid source of knowledge and disapproves both inference and verbal testimony. They are of faith that, whatever one experiences through perception is rightful and existent.

The Charvakas at first seem not to have been mindful of the difficulties in accepting perception as a valid source of knowledge, which were pointed out later by the Buddhist and Vedanta logicians. The later Charvakas expressed that they were aware of the difficulties, but they did not discuss the significances of this question and maintained a realistic position.

It is interesting to notice here that, in their examination of inference, the Charvakas foresaw the European sceptics. They said that inference was not a valid source of knowledge, because the major premise of an inference cannot be proved. For instance:

Wherever there is smoke, there is fire (Major premise);
This mountain has smoke (Minor premise);
There is fire in the mountain (Conclusion).

This is the classical example of inference in Indian epistemology. The Charvakas ask - (i) `How can we formulate the major premise unless we have seen all the instances of smoke? If we have not seen all the instances, how can we logically be justified in using the word `wherever`? If we have seen all the instances, we must have seen the present case, viz. the mountain also. (2) Then what is the use of making an inference when we have already perceived that there is fire in the mountains?` Hence the Charvakas say that inference is either impossible or unnecessary. Inference cannot generate truth.

However, causal statements like `Fire causes the bodies to expand` are also regarded as truth. And they are universal propositions like the major premise. The Charvakas state that these causal laws also are bound to be false. If one is able to apply causal laws and find them to be true, it is only just a chance event. In fact, the Charvaka theory of knowledge speak that there is no existence of causal laws. Every event is a chance; everything comes into existence and passes out of it according to its own nature. Even this nature is not a universal law; it too is subject to change.

The Charvakas make a strong attack on verbal testimony. Verbal knowledge is only knowledge of words and their meanings are based upon inference. One can say that: `The orange is red`. Now, through the established meanings of the four words, one infers that the object before the mind of the observer is an orange and that it is red. But it has already been pointed out that inference is a dicey source of knowledge. One can never be sure of the reliability of the observer of orange. For either reason, verbal testimony is not a reliable source of knowledge. The Charvakas perhaps make their strongest attack on the authenticity of the Vedas. The Vedas are not reliable at all, because they are self-contradictory. They propound thus in their theory, `At one place they enjoin on us not to commit any injury; but at another place they ask us to sacrifice animals to gods. How can one believe that the killing of animals in sacrifices brings one merit?`

Charvaka theory of knowledge also does not believe that the word-sounds are eternal. There is no sound, when no one utters it. And it stays only when produced by the vocal organs. If it is said that its timelessness can be proved by inference, it has already been established that inference is not reliable. And perception does not show that the word-sound can be eternal.

The Charvaka theory of knowledge is not exactly scepticism or agnosticism, but a fairly thoroughgoing positivism. They accept the reality of whatever one can perceive with one`s senses and refute the reality of whatever one cannot perceive. However, it should also be noted that they did not deny the formal validity of inference, because they used the very laws of inference to show that one cannot obtain material truths about the world through inference. They questioned only on the premises regarding how one can obtain the major premise. But they never stated that, even if one had the major premise, inference was wrong. They did not criticise the structure of the syllogism, but only wanted to prove that it was absolutely useless for obtaining any new truth about the world. In fact, they used the law of contradiction in disproving the doctrines of their rivals.