In this paper, we consider the impact that the novel functional neuroimaging techniques may have upon psychiatric illness. Functional neuroimaging has rapidly developed as a powerful tool in cognitive neuroscience and, in recent years, has seen widespread application in psychiatry. Although such studies have produced evidence for abnormal patterns of brain response in association with some pathological conditions, the core pathophysiologies remain unresolved. Although imaging techniques provide an unprecedented opportunity for investigation of physiological function of the living human brain, there are fundamental questions and assumptions which remain to be addressed. In this review we examine these conceptual issues under three broad sections: (1) characterising the clinical population of interest, (2) defining appropriate levels of description of normal brain function, and (3) relating these models to pathophysiological conditions. Parallel advances in each of these questions will be required before imaging techniques can impact on clinical decisions in psychiatry.