Virtual reality (VR) possesses many qualities that give it rehabilitative potential for people with intellectual disabilities, both as an intervention and an assessment. It can provide a safe setting in which to practice skills that might carry too many risks in the real world. Unlike human tutors, computers are infinitely patient and consistent. Virtual worlds can be manipulated in ways the real world cannot be and can convey concepts without the use of language or other symbol systems. Published applications for this client group have all been as rehabilitative interventions. These are described in three groups: promoting skills for independent living, enhancing cognitive performance, and improving social skills. Five groups of studies are reviewed that utilize virtual technology to promote skills for independent living: grocery shopping, preparing food, orientation, road safety, and manufacturing skills. Fears that skills or habits learnt in a virtual setting would not transfer to the real world setting have not been supported by the available evidence, apart from those studies with people with autistic spectrum disorders. Future directions are in the development of more applications for independent living skills, exploring interventions for promoting motor and cognitive skills, and the developments of ecologically valid forms of assessment.