The study of plasma–liquid interactions has evolved as a new interdisciplinary research field driven by the development of plasma applications for water purification, biomedicine and agriculture. Electrical discharges in contact with liquids are a rich source of reactive species in gas and in liquid phase which can be used to break polluting compounds in water or to induce healing processes in medical applications. An understanding of the fundamental processes in plasma, and of the interaction of plasma with liquid, enables the optimization of plasma chemistry in large-scale plasma devices with liquid electrodes. This article reviews recent progress and insight in the research of low-temperature plasmas in contact with liquids at atmospheric pressure. The work mainly focuses on the physical processes and phenomena in these plasmas with an attempt to provide a review of the latest and the most important research outcomes in the literature. The article provides an overview of the breakdown mechanisms in discharges in contact with liquid, emphasizing the recently studied specifities of plasma jets impinging on the liquid surface, and discharge generation with a high overvoltage. It also covers innovative approaches in the generation of plasma in contact with liquids. Novel phenomena detected by the imaging techniques and measurement of discharge parameters in the reviewed discharges are also presented. The results, the techniques that are applied, and those that may be applied in further studies, are listed and discussed. A brief overview of the applications focuses on the original approaches and new application fields. Future challenges and gaps in knowledge regarding further advancement in applications are summarized.