Paragraft currently supports a subset of the Markdown format when importing files. For exporting, Paragraft files are (or ought to be) 100% compatible with Markdown.

• Use of * and ** for bold and italics styling. (The _ alternative is not currently supported.)
• Use of * for introducing lists. When files are saved, four spaces are used to indicate an additional level of indenting. To assist editing on the device itself, when editing on an iPhone / iPod Touch / iPad each additional space before a * adds one level of indentation up to four levels.
• Unlike pure Markdown, Paragraft does care what number is used for numbered lists. This allows out of order lists if that’s something you want. However, if you have used 0 or 1 for all the items in a list in a document you import, Paragraft will number the list accordingly.
• #’s are used to indicating heading levels (up to four). (The —– and ===== on the line below a heading alternative is not currently supported.)
• Inline links are supported (but not titles). (Reference style is not currently supported, but is planned for v05.)
• Markdown image links are not currently supported.
• Blockquotes – these are supported (up to three levels) and work well for documents generated within the app. When importing, Paragraft may struggle with some document that use block quotes. Manual tidying is likely to be required. (Improved user interface support for block quotes is planned for v05.)
• Code spans are not currently supported.
• Preformatted code blocks are not currently supported.
• Horizontal rules require exactly three * characters or exactly three – characters
• Two spaces to indicate manual line breaks. Paragraft will respond to this convention, but its degree of success will depend on line breaking conventions. It will get a fair number of cases right, but this may not include your case.

The current development plan does include improved Markdown compatibility (as noted above). However, 100% Markdown compatibility is not currently (and may never be) a key goal for Paragraft. That said, if there is a particular feature of Markdown that you would like to see in Paragraft, please put in a request.

Markdown at the Daring Fireball site is a good place to find out more about Markdown format.