The coupled flap-lag-torsion aeroelastic stability and response of hingeless rotors in the hovering flight condition are determined analytically, and the benefits of an unsteady, three-dimensional aerodynamic model are demonstrated. Aerodynamic surfaces of the rotor blades are represented by a number of flat quadrilateral panels with piecewise constant source and doublet. The tip-vortex geometry is prescribed, and the inner wake geometry is iteratively calculated. The structural model allows for moderately large deflections and includes a variety of configuration parameters such as feathering axis precone, blade droop, and pitch-link flexibility. Numerical results for a two-bladed, stiff-inplane hingeless rotor with torsionally soft blades show that the three-dimensional tip effect is important to accurately predict the steady-state deflections. While only slight changes were noticed in torsional modal damping values and both lead-lag and torsion modal frequencies, a significant drop-off of the lead-lag modal damping from the two-dimensional aerodynamic theory predictions is obtained at high pitch angles. A correlation study with experiment shows an improved capability of the panel method to accurately predict the lead-lag damping values over the full range of all parameters investigated. It is found that the ingredients missing in previous analyses that preclude good correlation are not only stall-related, but are also related to three-dimensional tip loss and unsteady inflow effects which turn out to be important for this problem.