Cutaneous leishmaniasis (CL) is caused by parasitic infection of dermal macrophages resulting in intense immune-mediated tissue inflammation and skin ulceration. The severity of the disease is dependent on parasite species as well as the immune responses evoked by the host. Most cases of CL heal spontaneously. In rare cases, the ulcer/s become chronic, and some Leishmania species may induce mucosal leishmaniasis (MCL) leading to severe tissue damage. Due to difficulties in obtaining skin tissue, most human studies of CL have been limited to the analysis of peripheral blood. While systemic responses may be good correlates of immunity, tissue damage and local immune responses at the site of infection is seldom reflected in alterations in the peripheral blood. In this review, we discuss the different forms of CL focusing on the in situ responses in established disease and the mechanisms involved in pathology and healing of Leishmania infection. Great effort has been put into animal models dissecting the immune events behind the evolution of disease, tissue pathology and parasite control. These models of genetically engineered, immune deficient mice or mice given therapy prior to onset of overt disease poorly reflect the clinical situation, where patients seek treatment once infection is well established. Models of established disease are needed to address the clinical challenge of identifying new therapeutic targets in treatment CL. Through understanding immune deviations during CL potential benefits and risks of emerging biological drugs in leishmaniasis can be addressed.