Most animal species rely on odorant compounds to locate food, predators, or toxins. The sense of smell is also involved in animal communication, and revealing the underlying mechanisms will therefore facilitate a deeper understanding of animal behaviour. Since the 1940s different theories have speculated on the fundamental basis of olfaction. It was assumed that odorant molecules were recognized by selective protein receptors in the nose, triggering a nervous signal processed by the brain. The discovery of these receptors in the early 1990s allowed great progress in understanding the physiological and biochemical principles of olfaction. An overview of the different mechanisms involved in the coding of odour character as well as odour intensity is presented here, focusing on the biochemical basis of odorant recognition. Despite the enormous progress achieved in recent years, details of odorant-receptor interaction at the molecular level and the mechanisms of olfactory receptor activation are poorly understood. The likely role of metal ions in odorant recognition is discussed, and also the perireceptor events involved in odorant transport and biotransformation, with a view to providing a comprehensive overview of mammalian olfaction to guide future computational structural models and the design of functional experiments. Recent studies have analysed the olfactory genome of several species, providing information about the evolution of olfaction. The role of the olfactory system in animal communication is also described.