The concept of using living natural systems for crop protection is not novel. Regulatory pressures leading to decreased availability of chemical pesticides and increased awareness of possible adverse toxicological effects of some traditional chemicals have resulted in the search for safer alternatives. Additionally, resistance and pest resurgence issues, together with the introduction of newer, active molecules of biological origin or the synthetic derivatives thereof, have renewed the interest in living systems. While the main thrust in biological pesticide development to date has been in the area of insecticides, primarily driven by the development of Bacillus thuringiensis-based insecticides, the last decade has seen several attempts at identification and development of fungicidal, nematicidal and herbicidal products. Nevertheless, natural products occupy a relatively small niche in the overall US$32 billion global agricultural pesticide market. Living systems used in practical agriculture comprise bacteria, fungi, viruses, plants or plant-derived products (botanicals), and pathogen/predator systems. From a commercial perspective, however, the list is short and generally limited to those bacterial or fungal agents which are amenable to scaled-up production, and to those that consistently provide benefits and financial returns to the grower. Significant basic research has been carried out by many academic and public research groups in these areas, notable technical advances on basic and applied aspects of these organisms have also been made at industrial laboratories. While specific issues relating to individual biocontrol agents may differ, the information available, based on the development of Bacillus thuringiensis-based biological insecticides, has provided the highest degree of basic understanding on all commercial aspects of microbial pesticides. This paper addresses the current status of the use of biological agents to improve agricultural productivity, giving particular attention to their capabilities, critical factors and limitations, and is an attempt to review the recent trends in the light of advances in genetic engineering technology. Biotechnology has provided newer approaches to altering toxins for improved specificity to target pests, increased potency, and to enhancing expression and delivery mechanisms. Several research groups have utilized biotechnology to harness the potential of these natural agents. The recent introduction of transgenic plant technology, while presenting a powerful new option for exploiting the natural biological resources for controlling pests, if not managed, can potentially develop into a ‘Pandora's box’ and result in issues that might eventually threaten the commercial use of certain living systems. Thus, as the newer technologies appear on the horizon, it becomes inherently important to recognize the limitations and capabilities of each pest management tool in different agricultural systems. © 2000 Society of Chemical Industry