Pharmacologically active metabolites can contribute significantly to the overall therapeutic and adverse effects of drugs. Therefore, to fully understand the mechanism of action of drugs, it is important to recognize the role of active metabolites. Active metabolites can also be developed as drugs in their own right. Using illustrative examples, this paper discusses a variety of biotransformation reactions that produce active metabolites and their structure-activity relationships. The paper also describes the role and significance of active metabolites in drug discovery and development, various experimental observations that can be used as indicators of their presence, and methods that can be used to assess their biological activities and contribution to the overall therapeutic and adverse effects of drugs.