Heterokaryosis is an integral part of the parasexual cycle used by predominantly asexual fungi to introduce and maintain genetic variation in populations. Research into fungal heterokaryons began in 1912 and continues to the present day. Heterokaryosis may play a role in the ability of fungi to respond to their environment, including the adaptation of arbuscular mycorrhizal fungi to different plant hosts. The parasexual cycle has enabled advances in fungal genetics, including gene mapping and tests of complementation, dominance, and vegetative compatibility in predominantly asexual fungi. Knowledge of vegetative compatibility groups has facilitated population genetic studies and enabled the design of innovative methods of biocontrol. The vegetative incompatibility response has the potential to be used as a model system to study biological aspects of some human diseases, including neurodegenerative diseases and cancer. By combining distinct traits through the formation of artificial heterokaryons, fungal strains with superior properties for antibiotic and enzyme production, fermentation, biocontrol, and bioremediation have been produced. Future biotechnological applications may include site-specific biocontrol or bioremediation and the production of novel pharmaceuticals.