During the last decades considerable advances have been made in intravascular interventions for the treatment of coronary and peripheral arterial disease. However, long-term outcome remains an area of concern in many applications. Restenosis is still a challenge in endovascular medicine and has thus been referred to as the Achilles' heel of percutaneous intervention. Therefore, novel strategies have been developed to overcome this problem. These include drug-eluting stents, though still associated with stent thrombosis and in-stent restenosis, and the more recently introduced non-stent based local drug delivery systems, especially the paclitaxel-eluting balloon. Results of several preclinical and clinical studies indicate that short-term exposure of injured arteries to paclitaxel eluted from regular PTA and PTCA balloons may be sufficient to reduce late lumen loss and restenosis rates during a critical period of time after angioplasty of diseased coronary and peripheral arteries. Although the number of published trials and patients treated is still limited, available data seem to prove that restenosis inhibition by immediate drug release is feasible. This article reviews the rationale for the use of paclitaxel-coated balloons, data from preclinical and clinical studies, and the perspective of drug-coated balloons in peripheral arterial disease.