Computer-aided molecular design (CAMD) is becoming increasingly important to the drug discovery process. Although molecular mechanics (MM) has traditionally been the computational method of choice in medicinal chemistry, the MM method has significant deficiencies when used to study electron-based properties within the drug-receptor microenvironment. Quantum mechanical methods represent a solution to this problem, but QM methods are frequently too computationally intensive to be useful for molecular systems of interest to medicinal chemists. However, over the past five years, density functionally theory (DFT) has emerged as a QM method that is both sufficiently rigorous and efficient to be used for pharmaceutical problems. DFT is a popular method for accurately describing biologically relevant molecular systems at a reasonable computational cost. In this review, the potential applications of DFT to drug discovery are systematically discussed. First, the basis of DFT is reviewed. Subsequently, the accuracy of DFT for the study of molecular properties specific to drug design are reviewed in comparison to experimental results as well as other ab initio methods. The use of DFT for molecular modeling in medicinal chemistry is also reviewed. Finally, practical considerations for beginning DFT users and a summary of DFT performance are presented.