The way in which organisms detect specific volatile compounds within their environment, and the associated neural processing which produces perception and subsequent behavioural responses, have been of interest to scientists for decades. Initially, most olfaction research was conducted using electrophysiological techniques on whole animals. However, the discovery of genes encoding the family of human olfactory receptors (ORs) paved the way for the development of a range of cellular assays, primarily used to deorphan ORs from mammals and insects. These assays have greatly advanced our knowledge of the molecular basis of olfaction, however, while there is currently good agreement on vertebrate and nematode olfactory signalling cascades, debate still surrounds the signalling mechanisms in insects. The inherent specificity and sensitivity of ORs makes them prime candidates as biological detectors of volatile ligands within biosensor devices, which have many potential applications. In the previous decade, researchers have investigated various technologies for transducing OR:ligand interactions into a readable format and thereby produce an olfactory biosensor (or bioelectronic nose) that maintains the discriminating power of the ORs in vivo. Here we review and compare the molecular mechanisms of olfaction in vertebrates and invertebrates, and also summarise the assay technologies utilising sub-tissue level sensing elements (cells and cell extracts), which have been applied to OR deorphanization and biosensor research. Although there are currently no commercial, "field-ready" olfactory biosensors of the kind discussed here, there have been several technological proof-of-concept studies suggesting that we will see their emergence within the next decade.