Attempts for establishing an efficient gene targeting (GT) system in seed plants have hitherto not been successful. In contrast, GT based on homologous recombination is highly efficient in Physcomitrella, making this moss a novel tool in reverse genetics. However, why homologous and illegitimate recombination are differently regulated between Physcomitrella and seed plants is still enigmatic. Here we update the state of the art of GT in Physcomitrella and discuss approaches to unravel this enigma. Identification of molecular factors significantly enhancing GT and their subsequent transfer to crop plants will have a great impact on plant biotechnology by enabling precise genetic engineering. Physcomitrella appears to be the most useful model system in this context.