Gene targeting technology in mice by homologous recombination has become an important method to generate loss-of-function of genes in a predetermined locus. Although the inactivation is limited to irreversible alteration of chromosomal DNA and a surprising variety of genes have given unexpected and disappointing results, modification of the basic technology now provides additional choices for a more specific and variety of manipulations of the mouse genome. This includes conditional cell-type specific gene targeting, knockin technique and the induction of the specific balanced chromosomal translocations. In the past decade this technique not only generated a wealth of knowledge concerning the roles of growth factors, oncogenes, hormone receptors and Hox genes but also helped to produce animal models for several human genetic disorders. In the future it may provide more powerful and necessary tools to dissect the psychiatric disorders, understanding the complex central nervous system and to correct the inherited disorders.