Being the most extreme explosions in the universe, gamma-ray bursts (GRBs) provide a unique laboratory to study various plasma physics phenomena. The complex lightcurve and broad-band, non-thermal spectra indicate a very complicated system on the one hand, but on the other hand provide a wealth of information to study it. In this chapter I focus on recent progress in some of the key unsolved physical problems. These include: (1) Particle acceleration and magnetic field generation in shock waves; (2) Possible role of strong magnetic fields in accelerating the plasmas, and accelerating particles via magnetic reconnection process; (3) Various radiative processes that shape the observed lightcurve and spectra, both during the prompt and the afterglow phases, and finally (4) GRB environments and their possible observational signature.