A common effect of many environmental stresses is to cause oxidative damage; consequently, the antioxidant system is being intensively investigated. The use of transgenic plants to probe the role of the antioxidant system continues to be an important approach. The uncharted area of signal transduction in relation to oxidative stress is beginning to attract attention. Studies of drought response at the cellular level have focused on the role of compatible solutes (osmolytes) in acclimation to water stress. Information on signal transduction processes during drought is beginning to appear. As with the antioxidant system, there is increasing use of metabolic engineering in transgenic plants to introduce exotic compatible solutes. It is concluded that these potentially have a use in understanding, or even improving, drought resistance; however, there is a need for the assessment of stress tolerance of transgenics to be carried out at a more sophisticated level and for a critical analysis of the relevance for crop yield of the genes currently being manipulated.