Computer-aided drug discovery/design methods have played a major role in the development of therapeutically important small molecules for over three decades. These methods are broadly classified as either structure-based or ligand-based methods. Structure-based methods are in principle analogous to high-throughput screening in that both target and ligand structure information is imperative. Structure-based approaches include ligand docking, pharmacophore, and ligand design methods. The article discusses theory behind the most important methods and recent successful applications. Ligand-based methods use only ligand information for predicting activity depending on its similarity/dissimilarity to previously known active ligands. We review widely used ligand-based methods such as ligand-based pharmacophores, molecular descriptors, and quantitative structure-activity relationships. In addition, important tools such as target/ligand data bases, homology modeling, ligand fingerprint methods, etc., necessary for successful implementation of various computer-aided drug discovery/design methods in a drug discovery campaign are discussed. Finally, computational methods for toxicity prediction and optimization for favorable physiologic properties are discussed with successful examples from literature.