Cytochrome P450 enzymes that metabolize estrogens are expressed in the mammary gland, uterus, brain and other target tissues for estrogen action, and this results in the formation of hydroxylated estrogens in these tissues. Estradiol metabolites formed in target tissues at or near estrogen receptors may either be inactive or have important biological effects, and changes in the activities of estrogen-metabolizing enzymes in target tissues may profoundly influence estrogen action. Although some active estrogen metabolites exert hormonal effects in target tissues by interaction with the classical estrogen receptor, other metabolites appear to elicit unique biological responses that are not associated with activation of this receptor. Therefore, some of the many actions of estradiol may not be caused by estradiol per se, but may result from the formation of active estrogen metabolite(s) which function as local mediators or may activate their own unique receptors or effectors. This is an important area in need of more research. The present paper represents a review of the literature and perspectives by the authors on the functional role of estrogen metabolism in target tissues.