Capsule endoscopy (CE) has revolutionized the diagnosis and monitoring of small bowel Crohn's disease (CD). The procedure is patient friendly and noninvasive, and compared to cross-sectional imaging, CE allows a direct and detailed evaluation of the entire small bowel mucosa with a high sensitivity for the earliest lesions of CD. Today, CE is the leading modality for visualizing the small bowel in suspected CD, and validated activity indices are available for the follow up of patients with established CD. CE of the entire gastrointestinal tract (panenteric CE) was recently introduced as a new diagnostic approach in patients examined for CD, and preliminary results are promising. There are important limitations, involving mainly capsule retention. Furthermore, a diagnostic criterion for CD has never been validated, and lesions detected by CE are not specific for CD. Hence, concern has been raised about a low specificity compared to other diagnostic modalities. Important questions about the optimal bowel preparation, selection of patients for CE and the optimal reading protocol remain to be clarified. The aim of this review is to evaluate the performance of CE for diagnosing CD and assess disease activity in known CD; to compare the diagnostic accuracy of CE to that of cross-sectional imaging; to discuss limitations; and to define the place of CE in the diagnostic algorithm in suspected or known CD.