Sphingosine 1-phosphate (S1P) is a bioactive sphingolipid that is critically involved in the embryonic development of the cardiovascular and central nervous systems. In the adult, S1P can produce cytoskeletal re-arrangements in many cell types to regulate immune cell trafficking, vascular homeostasis and cell communication in the central nervous system. S1P is contained in body fluids and tissues at different concentrations, and excessive production of the pleiotropic mediator at inflammatory sites may participate in various pathological conditions. Gene deletion studies and reverse pharmacology (techniques aiming to identify both ligands and function of receptors) provided evidence that many effects of S1P are mediated via five G-protein-coupled S1P receptor subtypes, and novel therapeutic strategies based on interaction with these receptors are being initiated. The prototype S1P receptor modulator, FTY720 (fingolimod), targets four of the five S1P receptor subtypes and may act at several levels to modulate lymphocyte trafficking via lymphocytic and endothelial S1P1 and, perhaps, other inflammatory processes through additional S1P receptor subtypes. A recently completed Phase II clinical trial suggested that the drug may provide an effective treatment of relapsing-remitting multiple sclerosis. FTY720 is currently being evaluated in larger-scale, longer-term, Phase III studies. This review provides an overview on S1P activities and S1P receptor function in health and disease, and summarizes the clinical experience with FTY720 in transplantation and multiple sclerosis.