In this paper, we review several lines of recent work aimed at developing practical methods for adaptive on-line stimulus generation for sensory neurophysiology. We consider various experimental paradigms where on-line stimulus optimization is utilized, including the classical optimal stimulus paradigm where the goal of experiments is to identify a stimulus which maximizes neural responses, the iso-response paradigm which finds sets of stimuli giving rise to constant responses, and the system identification paradigm where the experimental goal is to estimate and possibly compare sensory processing models. We discuss various theoretical and practical aspects of adaptive firing rate optimization, including optimization with stimulus space constraints, firing rate adaptation, and possible network constraints on the optimal stimulus. We consider the problem of system identification, and show how accurate estimation of non-linear models can be highly dependent on the stimulus set used to probe the network. We suggest that optimizing stimuli for accurate model estimation may make it possible to successfully identify non-linear models which are otherwise intractable, and summarize several recent studies of this type. Finally, we present a two-stage stimulus design procedure which combines the dual goals of model estimation and model comparison and may be especially useful for system identification experiments where the appropriate model is unknown beforehand. We propose that fast, on-line stimulus optimization enabled by increasing computer power can make it practical to move sensory neuroscience away from a descriptive paradigm and toward a new paradigm of real-time model estimation and comparison.