Smart fabrics and interactive textiles (SFIT) are fibrous structures that are capable of sensing, actuating, generating/storing power and/or communicating. Research and development towards wearable textile-based personal systems allowing e.g. health monitoring, protection & safety, and healthy lifestyle gained strong interest during the last 10 years. Under the Information and Communication Programme of the European Commission, a cluster of R&D projects dealing with smart fabrics and interactive textile wearable systems regroup activities along two different and complementary approaches i.e. 'application pull' and 'technology push'. This includes projects aiming at personal health management through integration, validation, and use of smart clothing and other networked mobile devices as well as projects targeting the full integration of sensors/actuators, energy sources, processing and communication within the clothes to enable personal applications such as protection/safety, emergency and healthcare. The integration part of the technologies into a real SFIT product is at present stage on the threshold of prototyping and testing. Several issues, technical as well user-centred, societal and business, remain to be solved. The paper presents on going major R&D activities, identifies gaps and discuss key challenges for the future.