Advances in bioinformatics and protein modeling algorithms, in addition to the enormous increase in experimental protein structure information, have aided in the generation of databases that comprise homology models of a significant portion of known genomic protein sequences. Currently, 3D structure information can be generated for up to 56% of all known proteins. However, there is considerable controversy concerning the real value of homology models for drug design. This review provides an overview of the latest developments in this area and includes selected examples of successful applications of the homology modeling technique to pharmaceutically relevant questions. In addition, the strengths and limitations of the application of homology models during all phases of the drug discovery process are discussed.