With 18 monoclonal antibody (mAb) products currently on the market and more than 100 in clinical trials, it is clear that engineered antibodies have come of age as biopharmaceuticals. In fact, by 2008, engineered antibodies are predicted to account for >30% of all revenues in the biotechnology market. Smaller recombinant antibody fragments (for example, classic monovalent antibody fragments (Fab, scFv)) and engineered variants (diabodies, triabodies, minibodies and single-domain antibodies) are now emerging as credible alternatives. These fragments retain the targeting specificity of whole mAbs but can be produced more economically and possess other unique and superior properties for a range of diagnostic and therapeutic applications. Antibody fragments have been forged into multivalent and multi-specific reagents, linked to therapeutic payloads (such as radionuclides, toxins, enzymes, liposomes and viruses) and engineered for enhanced therapeutic efficacy. Recently, single antibody domains have been engineered and selected as targeting reagents against hitherto immunosilent cavities in enzymes, receptors and infectious agents. Single-domain antibodies are anticipated to significantly expand the repertoire of antibody-based reagents against the vast range of novel biomarkers being discovered through proteomics. As this review aims to show, there is tremendous potential for all antibody fragments either as robust diagnostic reagents (for example in biosensors), or as nonimmunogenic in vivo biopharmaceuticals with superior biodistribution and blood clearance properties.