We show that the exact exchange-correlation potential of time-dependent density-functional theory displays dynamical step structures that have a spatially non-local and time non-local dependence on the density. Using one-dimensional two-electron model systems, we illustrate these steps for a range of non-equilibrium dynamical situations relevant for modeling of photo-chemical/physical processes: field-free evolution of a non-stationary state, resonant local excitation, resonant complete charge-transfer, and evolution under an arbitrary field. Lack of these steps in usual approximations yield inaccurate dynamics, for example predicting faster dynamics and incomplete charge transfer.The vast majority of applications of time-dependent density functional theory (TDDFT) today deal with the calculation of the linear electronic spectra and response of molecules and solids, and provide an unprecedented balance between accuracy and efficiency [1,2]. The theorems of TDDFT also apply to any real-time electron dynamics, not necessarily starting in a ground-state, and possibly subject to strong or weak time-dependent fields. Time-resolved dynamics are particularly important and topical for TDDFT for two reasons. First, there is really no alternative practical method for accurately describing correlated electron dynamics, and second, many fascinating new phenomena and technological applications lie in this realm. These include: attosecond control of electron dynamics [3], photo-induced coupled electron-ion dynamics (for example in describing lightharvesting and artificial photosyntheses), and photochemical/physical processes [4,5] in general. TDDFT in theory yields all observables exactly, solely in terms of the time-dependent density, however in practice, approximations must be made both for the observable as a functional of the density, and for the exchangecorrelation (xc) functional. Thus the question arises as to whether the approximate functionals that have been successful for excitations predict equally well the dynamics in the more general time-dependent context. In particular, the exact xc contribution to the Kohn-Sham (KS) potential at time t functionally depends on the history of the density n(r, t ′ < t), the initial interacting many-body state Ψ 0 , and the choice of the initial KS state Φ 0 : v XC [n; Ψ 0 , Φ 0 ](r, t). However, almost all calculations today use an adiabatic approximation, v A XC = v g.s. XC