The translocator protein (18 kDa) (TSPO) is localized primarily in the outer mitochondrial membrane of steroid-synthesizing cells, including those in the central and peripheral nervous system. One of its main functions is the transport of the substrate cholesterol into mitochondria, a prerequisite for steroid synthesis. TSPO expression may constitute a biomarker of brain inflammation and reactive gliosis that could be monitored by using TSPO ligands as neuroimaging agents. Moreover, initial clinical trials have indicated that TSPO ligands might be valuable in the treatment of neurological and psychiatric disorders. This Review focuses on the biology and pathophysiology of TSPO and the potential of currently available TSPO ligands for the diagnosis and treatment of neurological and psychiatric disorders.