We study adiabatic ~curvature! and entropy ~isocurvature! perturbations produced during a period of cosmological inflation that is driven by multiple scalar fields with an arbitrary interaction potential. A local rotation in field space is performed to separate out the adiabatic and entropy modes. The resulting field equations show explicitly how on large scales entropy perturbations can source adiabatic perturbations if the background solution follows a curved trajectory in field space, and how adiabatic perturbations cannot source entropy perturbations in the long-wavelength limit. It is the effective mass of the entropy field that determines the amplitude of entropy perturbations during inflation. We present two applications of the equations. First, we show why one in general expects the adiabatic and entropy perturbations to be correlated at the end of inflation, and calculate the cross correlation in the context of a double inflation model with two non-interacting fields. Second, we consider two-field preheating after inflation, examining conditions under which entropy perturbations can alter the large-scale curvature perturbation and showing how our new formalism has advantages in numerical stability when the background solution follows a non-trivial trajectory in field space.