The dynamo theory of Sq variations is reexamined to see if it can be reconciled with recent observations of ionospheric winds and electric fields. Dynamo simulations are performed by using steady winds and both diurnal and semidiurnal tidal winds, observational and theoretical evidence being used to specify the amplitude and phase variations of the winds with altitude. We find that the first negative diurnal tidal mode, present in the upper E and lower F regions of the ionosphere, is capable of accounting for most of the Sq currents. The structure of this tide, which we call the (1, -2) * mode, is significantly influenced by the ion drag force. Lower E region winds, most notably the semidiurnal (2,4) tidal mode, also contribute somewhat to the Sq currents. Our simulated electric fields using the combined (1, -2) * and (2,4) modes are in fair agreement with observations; uncertainties in the ionospheric winds as well as errors in obtaining quiet day mean electric fields from the observations can easily account for the remaining discrepancies. Day-to-day variations in the daytime electric fields are probably related to variability of the E region winds. A simulation of electric currents and fields caused by hypothesized magnetospheric sources at quiet times shows that such sources alone cannot account for most of the observed middle- and low-latitude currents and fields, at least during daytime. Clarification of remaining problems requires further observational and theoretical work.