The undigestable disaccharide lactulose has been in medical use for over 40 years, mainly in the treatment of portosystemic encephalopathy and of constipation. Pharmacodynamics of lactulose make it an efficacious and safe drug in these indications. But the reason for its numerous potential benefits are under research now. The major principle of action is the promotion of growth and activity of lactic acid bacteria in the gut which counteract detrimental species such as clostridia or salmonellae. This shows that prebiotic action, if used accordingly, can have medically significant effects. The mechanism of action, medical and prebiotic effects, veterinary uses, and technological properties of lactulose, e. g. in yoghurt production are reviewed.