Animals use their chemosensory systems to detect and discriminate among chemical cues in the environment. Remarkable progress has recently been made in our knowledge of the molecular and cellular basis of chemosensory perception in insects, based largely on studies in the vinegar fly Drosophila melanogaster. This progress has been possible due to the identification of gene families for olfactory receptors, the use of electro-physiological recording techniques on sensory neurons, the manifold of genetic manipulations that are available in this species and insights from several insect model systems. The superfamilies of olfactory receptor proteins, the Or genes and the more recently discovered IR genes, represent the essential elements in olfactory coding, endowing olfactory receptor neurons with their abilities to respond to specific sets of odorants or pheromones. General odorants activate receptors in a combinatorial fashion, but some receptors are narrowly tuned to pheromones or to carbon dioxide. Surprisingly, olfactory receptors in insects are biochemically quite different to those in mammals and do not appear to signal via classical G protein pathways but rather via ionotropic mechanisms. Here we review the past decade of intensive research since the discovery of the first insect olfactory receptors in 1999, focusing on the molecules and cells that underly peripheral olfactory perception in Drosophila.