Traditionally, plasma or serum drug concentrations have been used for the assessment of bioavailability and bioequivalence. Since in the majority of cases the site of drug action is in the tissue rather than the blood, the use of corresponding free, unbound concentrations in the tissue is a much more meaningful approach. This can become especially important for topical drug administrations, where locally active drug concentrations can significantly exceed free concentrations in plasma. The ability to measure these free concentrations at the site of drug action over time makes microdialysis a very valuable tool for the assessment of bioavailability and bioequivalence. This has been recognized by industry and regulatory authorities, resulting in a recommendation of the microdialysis technique as a tool for bioequivalence determination of topical dermatologic products. The aim of this article is to provide an updated review of the microdialysis technique, its applications in skin and soft tissues, and the resulting impact on clinical drug development.