Cannabis is one of the most widely used drugs throughout the world. The psychoactive constituent of cannabis, delta 9-tetrahydrocannabinol (delta 9-THC), produces a myriad of pharmacological effects in animals and humans. For many decades, the mechanism of action of cannabinoids, compounds which are structurally similar to delta 9-THC, was unknown. Tremendous progress has been made recently in characterizing cannabinoid receptors both centrally and peripherally and in studying the role of second messenger systems at the cellular level. Furthermore, an endogenous ligand, anandamide, for the cannabinoid receptor has been identified. Anandamide is a fatty-acid derived compound that possesses pharmacological properties similar to delta 9-THC. The production of complex behavioral events by cannabinoids is probably mediated by specific cannabinoid receptors and interactions with other neurochemical systems. Cannabis also has great therapeutic potential and has been used for centuries for medicinal purposes. However, cannabinoid-derived drugs on the market today lack specificity and produce many unpleasant side effects, thus limiting therapeutic usefulness. The advent of highly potent analogs and a specific antagonist may make possible the development of compounds that lack undesirable side effects. The advancements in the field of cannabinoid pharmacology should facilitate our understanding of the physiological role of endogenous cannabinoids.