Successful goal-directed behavior requires not only correct action selection, planning, and execution but also the ability to flexibly adapt behavior when performance problems occur or the environment changes. A prerequisite for determining the necessity, type, and magnitude of adjustments is to continuously monitor the course and outcome of one's actions. Feedback-control loops correcting deviations from intended states constitute a basic functional principle of adaptation at all levels of the nervous system. Here, we review the neurophysiology of evaluating action course and outcome with respect to their valence, i.e., reward and punishment, and initiating short- and long-term adaptations, learning, and decisions. Based on studies in humans and other mammals, we outline the physiological principles of performance monitoring and subsequent cognitive, motivational, autonomic, and behavioral adaptation and link them to the underlying neuroanatomy, neurochemistry, psychological theories, and computational models. We provide an overview of invasive and noninvasive systemic measures, such as electrophysiological, neuroimaging, and lesion data. We describe how a wide network of brain areas encompassing frontal cortices, basal ganglia, thalamus, and monoaminergic brain stem nuclei detects and evaluates deviations of actual from predicted states indicating changed action costs or outcomes. This information is used to learn and update stimulus and action values, guide action selection, and recruit adaptive mechanisms that compensate errors and optimize goal achievement.