There has been concern that trainees are seldom observed, assessed, and given feedback during their workplace-based education. This has led to an increasing interest in a variety of formative assessment methods that require observation and offer the opportunity for feedback. To review some of the literature on the efficacy and prevalence of formative feedback, describe the common formative assessment methods, characterize the nature of feedback, examine the effect of faculty development on its quality, and summarize the challenges still faced. The research literature on formative assessment and feedback suggests that it is a powerful means for changing the behaviour of trainees. Several methods for assessing it have been developed and there is preliminary evidence of their reliability and validity. A variety of factors enhance the efficacy of workplace-based assessment including the provision of feedback that is consistent with the needs of the learner and focused on important aspects of the performance. Faculty plays a critical role and successful implementation requires that they receive training. There is a need for formative assessment which offers trainees the opportunity for feedback. Several good methods exist and feedback has been shown to have a major influence on learning. The critical role of faculty is highlighted, as is the need for strategies to enhance their participation and training.