Lithium is the simplest therapeutic agent available for the treatment of depression and has been used for over 100 years, yet no definitive mechanism for its effect has been established. Among the proposed mechanisms, two lithium-sensitive signal transduction pathways are active in the brain; these are mediated by glycogen synthase kinase 3beta (GSK-3beta) and inositol (1,4,5)-trisphosphate [Ins(1,4,5)P3] signalling. This article describes recent experiments in cell and developmental biology that advance our understanding of how lithium works and it presents new directions for the study of both depression and Alzheimer's disease (AD).