It is now widely appreciated that drug metabolites, in addition to the parent drugs themselves, can mediate the serious adverse effects exhibited by some new therapeutic agents, and as a result, there has been heightened interest in the field of drug metabolism from researchers in academia, the pharmaceutical industry, and regulatory agencies. Much progress has been made in recent years in understanding mechanisms of toxicities caused by drug metabolites, and in understanding the numerous factors that influence individual exposure to products of drug biotransformation. This review addresses some of these factors, including the role of drug-drug interactions, reactive metabolite formation, individual susceptibility, and species differences in drug disposition caused by genetic polymorphisms in drug-metabolizing enzymes. Examples are provided of adverse reactions that are linked to drug metabolism, and the mechanisms underlying variability in toxic response are discussed. Finally, some future directions for research in this field are highlighted in the context of the discovery and development of new therapeutic agents.