Essential fatty acids (EFA) are structural components of all tissues and are indispensable for cell membrane synthesis; the brain, retina and other neural tissues are particularly rich in long-chain polyunsaturated fatty acids (LCPUFA). These fatty acids serve as specific precursors for eicosanoids that regulate numerous cell and organ functions. Results from animal and recent human studies support the essential nature of n-3 EFA in addition to the well-established role of n-6 EFA for human subjects, particularly in early life. The most significant effects relate to neural development and maturation of sensory systems. Recent studies using stable-isotope-labelled tracers demonstrate that even preterm infants are able to form arachidonic acid (AA) and docosahexaenoic acid (DHA), but that synthesis is extremely low. Intracellular fatty acids or their metabolites regulate transcriptional activation of gene expression during adipocyte differentiation, and retinal and nervous system development. Regulation of gene expression by LCPUFA occurs at the transcriptional level and is mediated by nuclear transcription factors activated by fatty acids. These nuclear receptors are part of the steroid hormone receptor family. Two types of polyunsaturated fatty acid responsive transcription factors have been characterized, the peroxisome proliferator-activated receptor (PPAR) and the hepatic nuclear factor 4alpha. DHA also has significant effects on photoreceptor membranes involved in the signal transduction process, rhodopsin activation, and rod and cone development. Comprehensive clinical studies have shown that dietary supplementation with marine oil or single-cell oils, sources of LCPUFA, results in increased blood levels of DHA and AA, as well as an associated improvement in visual function in formula-fed premature infants to match that of human milk-fed infant. Recent clinical trials convincingly support LCPUFA supplementation of preterm infant formulations and possibly term formula to mimic human milk composition.