Insects have an enormous impact on global public health as disease vectors and as agricultural enablers as well as pests and olfaction is an important sensory input to their behavior. As such it is of great value to understand the interplay of the molecular components of the olfactory system which, in addition to fostering a better understanding of insect neurobiology, may ultimately aid in devising novel intervention strategies to reduce disease transmission or crop damage. Since the first discovery of odorant receptors in vertebrates over a decade ago, much of our view on how the insect olfactory system might work has been derived from observations made in vertebrates and other invertebrates, such as lobsters or nematodes. Together with the advantages of a wide range of genetic tools, the identification of the first insect odorant receptors in Drosophila melanogaster in 1999 paved the way for rapid progress in unraveling the question of how olfactory signal transduction and processing occurs in the fruitfly. This review intends to summarize much of this progress and to point out some areas where advances can be expected in the near future.