The thalamus has long been seen as responsible for relaying information on the way to the cerebral cortex, but it has not been until the last decade or so that the functional nature of this relay has attracted significant attention. Whereas earlier views tended to relegate thalamic function to a simple, machine-like relay process, recent research, reviewed in this article, demonstrates complicated circuitry and a rich array of membrane properties underlying the thalamic relay. It is now clear that the thalamic relay does not have merely a trivial function. Suggestions that the thalamic circuits and cell properties only come into play during certain phases of sleep to effectively disconnect the relay are correct as far as they go, but they are incomplete, because they fail to take into account interesting and variable properties of the relay that, we argue, occur during normal waking behavior. Although the specific function of the circuits and cellular properties of the thalamic relay for waking behavior is far from clear, we offer two related hypotheses based on recent experimental evidence. One is that the thalamus is not used just to relay peripheral information from, for example, visual, auditory, or cerebellar inputs, but that some thalamic nuclei are arranged instead to relay information from one cortical area to another. The second is that the thalamus is not a simple, passive relay of information to cortex but instead is involved in many dynamic processes that significantly alter the nature of the information relayed to cortex.