Optical imaging has a long history in physiology and in neurophysiology in particular. Over the past 15 years or so, new methodologies have emerged that combine genetic engineering with light-based imaging methods. This merger has resulted in a tool box of genetically encoded optical indicators that enable nondestructive and long-lasting monitoring of neuronal activities at the cellular, circuit, and system level. This review describes the historical roots and fundamental concepts underlying these new approaches, evaluates current progress in this field, and concludes with a forward-looking perspective on current work and potential future developments in this field.