FTY720 (Fingolimod) is a novel immunomodulator with a mode of action that is completely different from classical immunosuppressants. FTY is a structural and functional analogue of the natural serum lipid, sphingosine, and is the first in a new class of drugs called sphingosine 1-phosphate receptor (S1P-R) modulators. This review discusses the recent findings on the mechanism of action, preclinical models and outlines the results of the ongoing clinical development program. FTY is highly effective in prolonging allograft survival in preclinical models of transplantation and in experimental models of autoimmune diseases. In clinical trials, this novel compound was investigated in de novo renal transplantation and in multiple sclerosis. Pharmacokinetics are characterized by a prolonged absorption phase, a large volume of distribution, and a long elimination half-life. FTY induces a rapid and transient decrease in lymphocyte counts, which supports the modulatory effects of the drug on lymphocyte sequestration. The most common adverse event was asymptomatic transient bradycardia, a pharmacodynamic effect modulated by atrial S1 P-R. FTY failed to show an improvement in efficacy for the prevention of renal allograft rejection in two large phase III studies. FTY treatment regimens were associated with impaired renal function and the development of macula edema. Consequently, the further development in renal transplantation was stopped. Because initial clinical studies strongly suggest that FTY is highly effective in multiple sclerosis FTY is now being explored in phase III studies for the treatment of demyelinating diseases, Ongoing studies in multiple sclerosis are eagerly awaited because they may provide novel therapeutic options for patients with autoimmune diseases.