Gene targeting, defined as the introduction of site-specific modifications into the genome by homologous recombination, has revolutionarized the field of mouse genetics and allowed the analysis of diverse aspects of gene function in vivo. It is now possible to engineer specific genetic alterations ranging from subtle mutations to chromosomal rearrangements and more recently, even tissue-specific inducible gene targeting with temporo-spatial control has become feasible. This review tries to recapitulate what we have learned in this extremely rapidly expanding field during the past decade. Diverse aspects of the technique will be discussed starting from basic construct design to the analysis of complex phenotypes, including recent advances on inducible expression system. Many examples from different areas of biomedical research are given to illustrate the purpose and limitations of the employed experimental approaches.