Functional magnetic resonance imaging (fMRI) is well established for the examination of functional activity in the living brain. The method permits the development of functional activation maps during perceptual, cognitive and emotional efforts with a high temporal and spatial resolution. As of late there has been growing interest in using this technique to investigate regionally specific brain activity following the administration of drugs such as nicotine, cocaine, lorazepam, scopolamine, antipsychotics or antidepressants. Studies in experimental animals investigate signal changes associated with the administration of psychopharmacological substances in different brain areas using a high magnetising field (> 4 Tesla). FMRI-studies in healthy human volunteers and psychiatric patients focus on cerebral activity following acute drug administration (single challenge) and on adaptive effects of the CNS due to long- term medication. Their results provide insights into brain physiology and neuropharmacological mechanisms which are in turn relevant for preclinical pharmacological studies, responder analyses and for the investigation of pathogenetic models in psychiatric diseases. However, with these new opportunities, additional methodological considerations and limitations emerge. Besides the need of controlling motion artefacts, the influence of interfering psychological variables, an exact specification of the experimental design, a standardised analysis for data adjustment and technical limitations have to be considered. This article provides an overview of the underlying model of brain function, present applications, future possibilities and methodological limitations of fMRI for the understanding of human psychopharmacology.