The detection of odor molecules by olfactory receptors is a biochemical process, but the neural signal is electrical. The transformation of chemical information into a change in membrane potential, i.e. the process of signal transduction, is accomplished in olfactory receptor neurons by a multi-step second messenger pathway resulting finally in the activation of ion channels by cAMP. Many of the biochemical and physiological details of this process are beginning to be appreciated, giving rise to a comprehensive model of the basic mechanisms of olfactory transduction that has much in common with those of other signal transduction systems. One interesting result of these new insights is that the olfactory neuron may act more as a molecule counter than a concentration detector, as had been believed previously.