Fungal endophytes residing in the internal tissues of living plants occur in almost every plant on earth from the arctic to the tropics. The endophyte-host relationship is described as a balanced symbiotic continuum ranging from mutualism through commensalism to parasitism. This overview will highlight selected aspects of endophyte diversity, host specificity, endophyte-host interaction and communication as well as regulation of secondary metabolite production with emphasis on advanced genomic methods and their role in improving our current knowledge of endophytic associations. Furthermore, the chemical potential of endophytic fungi for drug discovery will be discussed with focus on the detection of pharmaceutically valuable plant constituents as products of fungal biosynthesis. In addition, selected examples of bioactive metabolites reported in recent years (2008-2010) from fungal endophytes residing in terrestrial plants are presented grouped according to their reported biological activities.