Counterfactuals are thoughts about alternatives to past events, that is, thoughts of what might have been. This article provides an updated account of the functional theory of counterfactual thinking, suggesting that such thoughts are best explained in terms of their role in behavior regulation and performance improvement. The article reviews a wide range of cognitive experiments indicating that counterfactual thoughts may influence behavior by either of two routes: a content-specific pathway (which involves specific informational effects on behavioral intentions, which then influence behavior) and a content-neutral pathway (which involves indirect effects via affect, mind-sets, or motivation). The functional theory is particularly useful in organizing recent findings regarding counterfactual thinking and mental health. The article concludes by considering the connections to other theoretical conceptions, especially recent advances in goal cognition.