Virtual reality, or VR, allows users to experience a sense of presence in a computer-generated three-dimensional environment. Sensory information is delivered through a head mounted display and specialized interface devices. These devices track head movements so that the movements and images change in a natural way with head motion, allowing for a sense of immersion. VR allows for controlled delivery of sensory stimulation via the therapist and is a convenient and cost-effective treatment. The primary focus of this article is to review the available literature regarding the effectiveness of incorporating VR within the psychiatric treatment of a wide range of psychiatric disorders, with a specific focus on exposure-based intervention for anxiety disorders. A systematic literature search was conducted in order to identify studies implementing VR based treatment for anxiety or other psychiatric disorders. This review will provide an overview of the history of the development of VR based technology and its use within psychiatric treatment, an overview of the empirical evidence for VR based treatment, the benefits for using VR for psychiatric research and treatment, recommendations for how to incorporate VR into psychiatric care, and future directions for VR based treatment and clinical research.