Olfactory space has a higher dimensionality than does any other class of sensory stimuli, and the olfactory system receives input from an unusually large number of unique information channels. This suggests that aspects of olfactory processing may differ fundamentally from processing in other sensory modalities. This review summarizes current understanding of early events in olfactory processing. We focus on how odors are encoded by the activity of primary olfactory receptor neurons, how odor codes may be transformed in the olfactory bulb, and what relevance these codes may have for downstream neurons in higher brain centers. Recent findings in synaptic physiology, neural coding, and psychophysics are discussed, with reference to both vertebrate and insect model systems.