Glucocorticoids have been used in the treatment of inflammatory and autoimmune diseases and to prevent graft rejection for over 50 years. These hormones exert their effects through cytoplasmic, heat shock protein-bound glucocorticoid receptors that translocate into the nucleus, where they regulate the transcriptional activity of responsive genes by binding to specific promoter DNA sequences (transactivation) or by interacting with transcription factors (transrepression). By interacting with different signaling pathways, newly characterized nuclear receptor coregulators enhance or diminish the actions of glucocorticoids, thus explaining the gene-, cell-, tissue- and context-dependent actions of glucocorticoids. Glucocorticoids modulate genes involved in the priming of the innate immune response, while their actions on the adaptive immune response are to suppress cellular [T helper (Th)1-directed] immunity and promote humoral (Th2-directed) immunity and tolerance. The past decade has produced new insights into the mechanisms of glucocorticoid sensitivity and resistance of inflammatory, autoimmune and allergic diseases. Both the quality and severity of the inflammatory stimulus, as well as the genetics and constitution of the patient, play key roles in the glucocorticoid sensitivity, dependency and resistance of these diseases. Although glucocorticoids increase susceptibility to opportunistic infections, they are also highly beneficial in the presence of serious systemic inflammation, such as that observed in septic shock and acute respiratory distress syndrome, when administered in a sustained fashion throughout the course of the disease. Glucocorticoids produce their cardiovascular, metabolic and antigrowth side effects through molecular mechanisms distinct from those involved in immunomodulation. Fortunately, the first generation of tissue- and immune- versus cardiovascular/metabolic effect-selective glucocorticoids is available for study and further improvement. ‘Designer’ glucocorticoids promise to be a great new advance in the therapy of inflammatory diseases.