Capsaicin has long been known to act selectively on a subpopulation of neurons to produce initial excitation, followed by a prolonged neuroinhibitory action commonly referred to as 'capsaicin desensitization'. This property has been exploited extensively as a tool with which to investigate the role of these nerves in the normal and pathophysiology of the airways. However, the cellular basis for these effects is only now beginning to be understood. The purpose of this review is to summarize recent findings that provide new insights into the mechanisms by which capsaicin acts to exert its effects. These findings suggest that capsaicin acts at a receptor that is either tightly coupled to, or indeed is, a relatively non-selective cation channel. Binding of capsaicin to this receptor allows both sodium and calcium (and possibly potassium) ions to flow down their concentration gradients, causing initial depolarization and neurotransmitter release. Prolonged exposure to capsaicin produces a subsequent desensitization or neuroinhibition. The neuroinhibition has now been shown to be of two types: capsaicin-specific and non-specific. The former is characterized by a loss of the acute excitatory response evoked by application of capsaicin, but maintained responses to other stimuli. The latter is characterized by a loss of responsiveness to all stimuli and is probably associated with the neurotoxic effect of this agent. Despite these recent findings, many questions remain regarding the nature and physiological role of the capsaicin receptor. The availability of two new probes for this receptor, ruthenium red and resiniferatoxin, promises to provide at least some of the answers to these intriguing questions.