The discovery of anandamide as an endogenous ligand for the cannabinoid receptors has led to a resurgence of interest in the fatty acid amides. However, N-palmitoylethanolamine (PEA), a shorter and fully saturated analogue of anandamide, has been known since the fifties. This endogenous compound is a member of the N-acylethanolamines, found in most mammalian tissues. PEA is accumulated during inflammation and has been demonstrated to have a number of anti-inflammatory effects, including beneficial effects in clinically relevant animal models of inflammatory pain. It is now engaged in phase II clinical development, and two studies regarding the treatment of chronic lumbosciatalgia and multiple sclerosis are in progress. However, its precise mechanism of action remains debated. In the present review, the biochemical and pharmacological properties of PEA are discussed, in particular with respect to its analgesic and anti-inflammatory properties.