Terahertz pulsed spectroscopy (TPS) and terahertz pulsed imaging (TPI) are two novel techniques for the physical characterization of pharmaceutical drug materials and final solid dosage forms, utilizing spectral information in the far infrared region of the electromagnetic spectrum. This review focuses on the development and performance of pharmaceutical applications of terahertz technology compared with other tools for physical characterization. TPS can be used to characterize crystalline properties of drugs and excipients. Different polymorphic forms of a drug can be readily distinguished and quantified. Recent developments towards a better understanding of the fundamental theory behind spectroscopy in the far infrared have been discussed. Applications for TPI include the measurement of coating thickness and uniformity in coated pharmaceutical tablets, structural imaging and 3D chemical imaging of solid dosage forms.