Functional polymorphisms that alter gene expression and mRNA processing appear to play a critical role in shaping human phenotypic variability. Intensive studies on polymorphisms affecting drug response have revealed multiple modes of altered gene function, frequently involving cis-acting regulatory sequence variants. Experimental and in silico methods have advanced the search for such polymorphisms, but considerable challenges remain. Here, a survey of polymorphisms in drug-related genes indicates that: (a) a substantial proportion of genetic variability still remains unaccounted for; (b) a majority of these genes harbors known regulatory polymorphisms; and (c) a portion of polymorphisms affect splicing and mRNA turnover. Pharmacogenetic optimiziation of individual drug therapy may require a complete understanding of all functional sequence variants in key genes. This review surveys known noncoding polymorphisms in genes encoding cytochrome P450s and other drug-metabolizing enzymes, drug transporters, and drug targets and receptors. Current methods and challenges associated with the identification and characterization of functional polymorphisms are also discussed.