Gene-environment interaction is a form of causal interplay, whereby genetic effects on phenotypic variation change as a function of environmental exposure. While conceptually appealing, there is still much debate on the veracity and the relevance of this form of etiological interdependence for psychiatric disorders. By focusing on panic disorder (PD) and posttraumatic stress disorder (PTSD), this article outlines why gene-environment interaction is controversial, why it can be important for both researchers and clinicians, and how it is investigated by quantitative genetic, molecular genetic, and genomic strategies. It is suggested that gene-environment interaction effects are more reliable and meaningful when they can be harnessed to pinpoint specific biological pathways and mechanisms. In psychiatry, this can be guided by phenotypic dissection and realized by adopting intermediate phenotypes of a physiological nature, such as carbon dioxide sensitivity for PD, or gene expression profiling after stress for PTSD. A developmental framework of reference and the possibility of transferring the investigation to animal models are additional key elements in this debate.