The sentence stands in the Preface and runs:
What is rational is actual; and what is actual is rational.
Preface to the Philosophy of Right
It is usually read like this: whatever exists is thereby in the right. That would be an invitation to put up with anything – and it would be incompatible with Hegel’s own book, which over long stretches is about what is wrong with what exists.
The mistake lies in one word
Actual does not mean, in Hegel, what is at hand. It is a technical term, and it stands opposed to the merely possible and contingent, not to the imagined. What is actual is what corresponds to its concept. Everything else does exist, but is, as the note to § 1 puts it, „transient existence, external contingency, opinion, inessential appearance, untruth, illusion“.
Hegel did not adjust this afterwards; he explained it expressly in the Encyclopaedia of 1830, because the misunderstandings had come to his ears:
In common life people happen to call every notion, error, evil, and whatever belongs on that side, as well as every however stunted and transient existence, an actuality. But even to ordinary feeling a contingent existence will not deserve the emphatic name of something actual; the contingent is an existence that has no greater value than something possible, which may just as well not be as it is.
Encyclopaedia § 6, note
It is worth noting where this clarification is missing: in the student anthology from which Karl Popper drew his knowledge of Hegel.
What the sentence then says
It cuts both ways. On the one side: a despotic government exists, but it is not actual – it does not correspond to its concept and for that reason perishes. The sentence is no licence for what exists but a standard applied to it.
On the other: whoever holds the present to be simply null and knows better has his better world, as Hegel writes in the same Preface, „only in his opining – a soft element in which anything whatever can be imagined“. That is the more uncomfortable half, and it is directed against the critics, not against the conditions.
The price
One may hold it against Hegel that a word which in everyday use means „at hand“ means something else in him, without his saying so in the sentence itself. The reproach is justified. Hegel supplied what he meant only once – and only after nine years; otherwise he took it to be the reader’s business to take the concept from the system. With that he earned himself the most lasting reputation of his life.
Sources. Walter Kaufmann, „The Hegel Myth and Its Method“, 1959 · Jon Stewart (ed.), The Hegel Myths and Legends, 1996, there „The Myth of the Rational and the Actual“. – See also in the glossary: Actuality and Rationality, The Concept, The Owl of Minerva.