Graves' disease (GD) is a very common autoimmune disorder of the thyroid in which stimulatory antibodies bind to the thyrotropin receptor and activate glandular function, resulting in hyperthyroidism. In addition, some patients with GD develop localized manifestations including ophthalmopathy (GO) and dermopathy. Since the cloning of the receptor cDNA, significant progress has been made in understanding the structure-function relationship of the receptor, which has been discussed in a number of earlier reviews. In this paper, we have focused our discussion on studies related to the molecular mechanisms of the disease pathogenesis and the development of animal models for GD. It has become apparent that multiple factors contribute to the etiology of GD, including host genetic as well as environmental factors. Studies in experimental animals indicate that GD is a slowly progressing disease that involves activation and recruitment of thyrotropin receptor-specific T and B cells. This activation eventually results in the production of stimulatory antibodies that can cause hyperthyroidism. Similarly, significant new insights have been gained in our understanding of GO that occurs in a subset of patients with GD. As in GD, both environmental and genetic factors play important roles in the development of GO. Although a number of putative ocular autoantigens have been identified, their role in the pathogenesis of GO awaits confirmation. Extensive analyses of orbital tissues obtained from patients with GO have provided a clearer understanding of the roles of T and B cells, cytokines and chemokines, and various ocular tissues including ocular muscles and fibroblasts. Equally impressive is the progress made in understanding why connective tissues of the orbit and the skin in GO are singled out for activation and undergo extensive remodeling. Results to date indicate that fibroblasts can act as sentinel cells and initiate lymphocyte recruitment and tissue remodeling. Moreover, these fibroblasts can be readily activated by Ig in the sera of patients with GD, suggesting a central role for them in the pathogenesis. Collectively, recent studies have led to a better understanding of the pathogenesis of GD and GO and have opened up potential new avenues for developing novel treatments for GD and GO.