Combinatorial libraries employing the one-bead-one-compound technique are reviewed. Two distinguishing features characterize this technique. First, each compound is identified with a unique solid support, enabling facile segregation of active compounds. Second, the identity of a compound on a positively reacting bead is elucidated only after its biological relevance is established. Direct methods of structure identification (Edman degradation and mass spectroscopy) as well as indirect "coding" methods facilitating the synthesis and screening of nonpeptide libraries are discussed. Nonpeptide and "scaffold" libraries, together with a new approach for the discovery of a peptide binding motif using a "library of libraries," are also discussed. In addition, the ability to use combinatorial libraries to optimize initially discovered leads is illustrated with examples using peptide libraries.