Although placebo effect is a common phenomenon in medicine and research, its mechanisms are not well understood. With the advent of modern medicine, placebo became a symbol for an outdated, morally questionable practice implying deceit and paternalism. However, in recent years, there has been an increasing amount of rigorous research into the mechanisms of placebo response and placebo analgesia with most studies coming from the field of pain medicine. New theories on placebo mechanisms have shown that placebo represents the psychosocial aspect of every treatment and the study of placebo is essentially the study of psychosocial context that surrounds the patient. Therefore, its understanding is essential for researchers and all medical practitioners, particularly those dealing with patients suffering from pain, depression, and motor disorders. In this article, we review the theories on placebo mechanisms and discuss their implications for clinical practice and the design of clinical trials.