What is Episiotomy?
Episiotomy is simply a surgical cut intended to widen the vaginal opening. Its use is meant to prevent severe tears and trauma to the perineum during a vaginal birth. It can also be used to expedite a birth in the case of fetal trauma, or to allow an instrumental (forceps or vacuum) delivery. The two most common types of episiotomy are medio-lateral and midline, which basically refers to the angle of the cut — midline (toward the anus) or medio-lateral (diagonal, away from the anus). 
What does the evidence suggest about its practice?
More than 20 years of research indicates that episiotomies should NEVER be a routine practice , and that a restrictive policy is best. The World Health Organization recommends episiotomy rates of below 10%. 
What is the current practice?
The practice of episiotomy originated in the 18th century, and became widespread over the next 100 years as instrumental deliveries rose in popularity — widening the opening helped doctors maneuver the baby manually or with forceps. For a long time, it was assumed that a surgical cut was better than a natural tear, and that it reduced the chances of incontinence (leaking urine and/or feces) and improved sexual function. At some points in history, it was a routine hospital birth procedure, with upwards of 70-80% of all mothers experiencing one, with first time mothers more susceptible than others. 
In 1983, research showed that not only did episiotomy NOT improve incontinence or sexual function, but that it actually seemed to increase the odds of a woman experiencing BOTH.  The American College of Obstetrics and Gynecology (ACOG) changed its stance concerning the procedure, encouraging its members to take more preventative measures, and avoid episiotomy whenever possible , but it took over 20 years for the policy to become practice. Some hospitals still have a policy of routine episiotomies.  In 1997, the rate of episiotomies was 29% of all births, but in 2006, the rate of episiotomy was about 9%,  just under the <10% recommended by the World Health Organization (WHO). 
Today, its use is more restrictive, usually only performed in cases of fetal distress where a quick (usually instrumental) delivery is required. 
What are the risks of episiotomy?
Most of the consequences of episiotomy effect the mother, rather than the baby, and while they are generally not life-threatening, they can greatly impact her quality of life and make her birth experience more traumatic. Episiotomy increases a mother’s chance of blood loss  during delivery and rate of infection.  Women with episiotomies have a longer recovery time and experience more incontinence  and painful intercourse , even after the cut has healed. And, despite claims that episiotomies reduce the risk of severe tears, the procedure actually INCREASES a chance that she will tear further.  Think of how you might snip a piece of fabric in order to rip it in two — same concept.
Why does episiotomy increase a woman’s chances of incontinence?
When a woman is sutured after an episiotomy, the doctors are essentially sewing together her pelvic floor muscles, which are essential to bladder and bowel control, as well as sexual pleasure. Some doctors have claimed that a sutured vagina is as good as or “better than new,” but as anyone whose had a c-section or major surgery knows, sutured muscle never heals quite like new. It is weaker and looser (hence the post c-section “pooch”). This weakness, this looseness, can actually contribute to incontinence and painful intercourse, not prevent it.
Many surgeons believe a surgical cut to be better than a natural tear, although scientific data has proven otherwise. The misperception stems from the fact that obstetricians are surgeons accustomed to sewing up openings that have been made with a scalpel-that is, cuts that are straight and clean-whereas tears are ragged and irregular. It is perhaps counter-intuitive to surgeons that a tear is better than a cut. What they don’t appreciate is that a tear follows the lines of the tissue, which can be brought back together like a jigsaw puzzle. An episiotomy cut, on the other hand, ignores any anatomical structures or borders and disrupts the integrity of muscles, blood vessels, nerves, and other tissues, resulting in more bleeding, more pain, more loss of muscle tone, and more deformity of the vagina with associated pain during sexual intercourse.
Marsden Wagner. Born in the USA: How a Broken Maternity System Must Be Fixed to Put Women and Children First (p. 56). Kindle Edition.
Essentially, the natural alternative to episiotomy is tearing, although it is absolutely possible to have a vaginal delivery with neither a cut or tear. 
During pregnancy, exercises such as Kegels and squats have been shown to reduce the chances of a tear by increasing the elasticity of the perineum. Sexual activity during pregnancy has also been shown to soften the tissue, making it expand easier and with fewer tears. Perineal massage during the third trimester has demonstrated similar benefits. 
The traditional hospital birth position, either lying down or reclined, increases a woman’s chances of tearing or requiring an episiotomy due to the improper positioning of the baby’s head pressing against the perineum. 
Epidural use, because the woman cannot feel the trauma while it is happening, has also been shown to increase tearing. She also may be “coached” through the pushing phase, rather than led by her natural urges, which again increases her chances of tearing. 
Instrumental deliveries, such as forceps or vacuum extractions, have also been shown to increase perineal trauma.
Alternatively, laboring and/or birthing in warm water , squatting or side-lying positions during pushing, “breathing down” the baby during crowning, as well as the use of hot compresses  have been shown to reduce the chances of tearing and episiotomy.
Knowing all this, you have the right to REFUSE THIS PROCEDURE. In fact, you have the right to refuse any procedure you don’t want. Exercise that right and get the birth you want! 
The perceived need for episiotomy seems based in a couple faulty assumptions. First, that the woman’s body is somehow incapable of giving birth (an assumption rampant in the medical community), and therefore needs help from a doctor in order to be successful. And secondly, that a cut is better than a tear (which doctors seem to believe are an unavoidable part of giving birth). Neither of these assumptions are true, and it’s time for hospitals, care providers, and women to consider just who actually benefits from routine episiotomy.
Even though ACOG has recommended against routine episiotomy since 1983, some doctors and hospitals seem not to have gotten the memo. And it’s not just episiotomy — many practices that have no basis in evidence continue to be routinely practiced in modern obstetrics. It makes me wonder, just how much time, and how much evidence, do obstetricians and hospitals need in order to stop doing things that hurt women and babies? Recently, ACOG changed their policy regarding Vaginal Birth after Cesarean (VBAC), but I personally remain skeptical as to how long it will take before attitudes really change. 
The rate of episiotomy (and forceps delivery) may be down, but the C-section has risen significantly. Are we just trading one cut for another? Is that an improvement? 
Conspiracy Theory Time:
When you look deeply into the history of episiotomy, a surprising amount of sexism comes floating to the surface. Just like many other birth interventions, it is first based on the principal thought that women are incapable of giving birth, that they must need medical intervention. The benefits of episiotomy are questionable, but the consequences to the mother are devastating — the humiliation of incontinence, a long and painful recovery, and a loss of her ability to feel sexual pleasure. And still the advocates of episiotomy tout that one of the benefits of the procedure is “re-virginization,” which is clearly a benefit for the woman’s partner, not to the woman herself — because losing her virginity was so great, every woman wants to do it TWICE, right? Sounds like whoever came up with that line doesn’t have a vagina, if you know what I mean. Plus, the idea that the only good vagina is a tight vagina, and no man is going to want to be with someone with a used vagina, reduces the woman’s value to one part of her body, and that is blatant objectification. See, sexism at its finest.
Birth: The Surprising History of How We Are Born (Cassidy, 2007)
Ina May Gaskin’s Guide to Childbirth (Gaskin, 2003)