Measuring similarity between molecules is a fundamental problem in cheminformatics. Given that similar molecules tend to have similar physical, chemical, and biological properties, the notion of molecular similarity plays an important role in the exploration of molecular data sets, query-retrieval in molecular databases, and in structure-property/activity modeling. Various methods to define structural similarity between molecules are available in the literature, but so far none has been used with consistent and reliable results for all situations. We propose a new similarity method based on atom alignment for the analysis of structural similarity between molecules. This method is based on the comparison of the bonding profiles of atoms on comparable molecules, including features that are seldom found in other structural or graph matching approaches like chirality or double bond stereoisomerism. The similarity measure is then defined on the annotated molecular graph, based on an iterative directed graph similarity procedure and optimal atom alignment between atoms using a pairwise matching algorithm. With the proposed approach the similarities detected are more intuitively understood because similar atoms in the molecules are explicitly shown. This noncontiguous atom matching structural similarity method (NAMS) was tested and compared with one of the most widely used similarity methods (fingerprint-based similarity) using three difficult data sets with different characteristics. Despite having a higher computational cost, the method performed well being able to distinguish either different or very similar hydrocarbons that were indistinguishable using a fingerprint-based approach. NAMS also verified the similarity principle using a data set of structurally similar steroids with differences in the binding affinity to the corticosteroid binding globulin receptor by showing that pairs of steroids with a high degree of similarity (>80%) tend to have smaller differences in the absolute value of binding activity. Using a highly diverse set of compounds with information about the monoamine oxidase inhibition level, the method was also able to recover a significantly higher average fraction of active compounds when the seed is active for different cutoff threshold values of similarity. Particularly, for the cutoff threshold values of 86%, 93%, and 96.5%, NAMS was able to recover a fraction of actives of 0.57, 0.63, and 0.83, respectively, while the fingerprint-based approach was able to recover a fraction of actives of 0.41, 0.40, and 0.39, respectively. NAMS is made available freely for the whole community in a simple Web based tool as well as the Python source code at http://nams.lasige.di.fc.ul.pt/.