During its periodic motion, a particle floating at the free surface of a water wave experiences a net drift velocity in the direction of wave propagation, known as the Stokes drift (Stokes 1847 Trans. Camb. Philos. Soc. 8 , 441–455). More generally, the Stokes drift velocity is the difference between the average Lagrangian flow velocity of a fluid parcel and the average Eulerian flow velocity of the fluid. This paper reviews progress in fundamental and applied research on the induced mean flow associated with surface gravity waves since the first description of the Stokes drift, now 170 years ago. After briefly reviewing the fundamental physical processes, most of which have been established for decades, the review addresses progress in laboratory and field observations of the Stokes drift. Despite more than a century of experimental studies, laboratory studies of the mean circulation set up by waves in a laboratory flume remain somewhat contentious. In the field, rapid advances are expected due to increasingly small and cheap sensors and transmitters, making widespread use of small surface-following drifters possible. We also discuss remote sensing of the Stokes drift from high-frequency radar. Finally, the paper discusses the three main areas of application of the Stokes drift: in the coastal zone, in Eulerian models of the upper ocean layer and in the modelling of tracer transport, such as oil and plastic pollution. Future climate models will probably involve full coupling of ocean and atmosphere systems, in which the wave model provides consistent forcing on the ocean surface boundary layer. Together with the advent of new space-borne instruments that can measure surface Stokes drift, such models hold the promise of quantifying the impact of wave effects on the global atmosphere–ocean system and hopefully contribute to improved climate projections. This article is part of the theme issue ‘Nonlinear water waves’.