Wikipedia
MS-CHAP is the Microsoft version of the Challenge-Handshake Authentication Protocol, CHAP. The protocol exists in two versions, MS-CHAPv1 (defined in RFC 2433) and MS-CHAPv2 (defined in RFC 2759). MS-CHAPv2 was introduced with Windows NT 4.0 SP4 and was added to Windows 98 in the "Windows 98 Dial-Up Networking Security Upgrade Release" and Windows 95 in the "Dial Up Networking 1.3 Performance & Security Update for MS Windows 95" upgrade. Windows Vista dropped support for MS-CHAPv1.
MS-CHAP is used as one authentication option in Microsoft's implementation of the PPTP protocol for virtual private networks. It is also used as an authentication option with RADIUS servers which are used for WiFi security using the WPA-Enterprise protocol. It is further used as the main authentication option of the Protected Extensible Authentication Protocol (PEAP).
Compared with CHAP, MS-CHAP:
- is enabled by negotiating CHAP Algorithm 0x80 (0x81 for MS-CHAPv2) in LCP option 3, Authentication Protocol
- provides an authenticator-controlled password change mechanism
- provides an authenticator-controlled authentication retry mechanism
- defines failure codes returned in the Failure packet message field
MS-CHAPv2 provides mutual authentication between peers by piggybacking a peer challenge on the Response packet and an authenticator response on the Success packet.