Functional magnetic resonance imaging (fMRI) is a technique that exploits magnetic resonance imaging (MRI) to detect regional brain activity through measurement of the hemodynamic response that is coupled to electrical neuronal activity. The most common fMRI method detects blood oxygen level dependent (BOLD) contrast. The BOLD effect represents alteration in the ratio of deoxygenated to oxygenated hemoglobin within brain tissue following neuronal activity. Alterations in this hemoglobin ratio result from changes in cerebral oxygen extraction, cerebral blood flow, and cerebral blood volume that occur in response to neuronal activity. The small, but detectable, change in magnetics resonance signal intensity is due to the sensitivity of magnetic resonance (MR) images to the paramagnetic deoxygenated state of hemoglobin that is the basis of contrast in fMRI applications. This review describes the physical and physiological bases of the MR signal, the principle of the BOLD effect, technical issues related to fMRI implementation, and fMRI experimental design. Research and clinical applications of fMRI are presented, including the use of fMRI in neurosurgical planning. Since it provides an individualized map of brain function, fMRI enables accurate localization of eloquent brain regions prior to surgery, allowing assessment of surgical risk and prognosis, as well as planning surgical approach.