Leflunomide is a new immunomodulatory drug effective in experimental models of autoimmune diseases and allo- or xenotransplantation. In a Phase II clinical trial leflunomide has shown high tolerability and efficacy in patients with advanced rheumatoid arthritis. The immunomodulatory activity of leflunomide is attributed to its primary metabolite, A77 1726, a malononitriloamide. The in vitro and in vivo mechanisms of action of this class of compounds remain to be completely defined. A77 1726 and several malononitriloamide analogues inhibit T- and B-cell proliferation, suppress immunoglobulin production, and interfere with cell adhesion. While no one central molecular mechanism of action has been proposed to explain all the effects of the malononitriloamides, inhibition of de novo pyrimidine biosynthesis and inhibition of cytokine- and growth factor-receptor associated tyrosine kinase activity are leading hypotheses for the effects of A77 1726 on T- and B-cell proliferation and function. Leflunomide is effective when administered at daily doses of 10 and 25 mg to patients with active rheumatoid arthritis. The improved efficacy at the 25 mg dose is associated with a higher incidence of adverse effects (gastrointestinal symptoms, weight loss, allergic reactions, skin rash, and reversible alopecia). Due to the long plasma half-life of A77 1726 (11-16 days), loading doses are required to achieve steady-state concentrations. Phase III randomised, placebo-controlled trials using daily doses of 10 or 20 mg are underway in the US and Europe to confirm and extend the results of the Phase II study. Malononitriloamide analogues of A77 1726 are being evaluated for immunosuppressive efficacy in preclinical models of transplantation, because these compounds have a shorter half-life in animals than A77 1726. If these analogues show efficacies similar to leflunomide in these models and have shorter half-lives than A77 1726 in Phase I trials, the preclinical and Phase I data will be used to select the analogues for Phase II trials in organ transplant recipients.