The gap between the amount of genome information released by genome sequencing projects and our knowledge about the proteins' functions is rapidly increasing. To fill this gap, various 'genomic-context' methods have been proposed that exploit sequenced genomes to predict the functions of the encoded proteins. One class of methods, phylogenetic profiling, predicts protein function by correlating the phylogenetic distribution of genes with that of other genes or phenotypic characteristics. The functions of a number of proteins, including ones of medical relevance, have thus been predicted and subsequently confirmed experimentally. Additionally, various approaches to measure the similarity of phylogenetic profiles and to account for the phylogenetic bias in the data have been proposed. We review the successful applications of phylogenetic profiling and analyse the performance of various profile similarity measures with a set of one microsporidial and 25 fungal genomes. In the fungi, phylogenetic profiling yields high-confidence predictions for the highest and only the highest scoring gene pairs illustrating both the power and the limitations of the approach. Both practical examples and theoretical considerations suggest that in order to get a reliable and specific picture of a protein's function, results from phylogenetic profiling have to be combined with other sources of evidence.