The present evidence illustrates that the placebo effect depends on a variety of neurochemical and neurophysiological mechanisms, which are measurable and modifiable. However, the placebo response is inexorably tied to the treatment context. All medical treatments take place in a particular context; this context includes the therapist's attitudes, psychosocial factors affecting the therapeutic relationship, and the patient's mindset. Therapeutic efficacy at least in part is attributable to the concordance between the proposed treatment and the patient's belief system. It is this fraction of the therapeutic response that is commonly called the placebo effect. More formally, the placebo effect is defined as that part of the therapeutic response that is not attributable to the properties of active ingredients. A proposed model of the placebo effect includes a complex reaction with induction, psychophysiological mediators, neurobiological mediators, and actualization of effects. Similarly, nocebo hyperalgesia is also explained by neurobiological mechanisms resulting in anxiety and nocebo hyperalgesia. Functional neuroanatomy of placebo indicates an anticipation phase and modulation phase or placebo response. In modern medicine it is well recognized that the treatment effect of many active interventions is related to both an active treatment component and the placebo component. Thus, clinical implications are enormous as such placebo analgesia and nocebo hyperalgesia are not simply response biases. Instead, they are the product of neurophysiological processes that modulate the integration of the nociceptive signals throughout the central nervous system. Thus, it has been suggested that clinicians should not try to avoid the placebo effect. On the contrary, they should try to potentiate it, since this is a very important clinical implication. From the research perspective, the emerging knowledge of placebo continues to cast doubts on the appropriateness of the double-blind placebo-control design in assessing efficacy of treatment--specifically involving interventional techniques or surgery. The research setting itself may introduce nocebo hyperalgesia.