By compartmentalizing reactions in aqueous microdroplets of water-in-oil emulsions, reaction volumes can be reduced by factors of up to 109 compared to conventional microtitre-plate based systems. This allows massively parallel processing of as many as 1010 reactions in a total volume of only 1 ml of emulsion. This review describes the use of emulsions for directed evolution of proteins and RNAs, and for performing polymerase chain reactions (PCRs). To illustrate these applications we describe certain specific experiments, each of which exemplifies a different facet of the technique, in some detail. These examples include directed evolution of Diels–Alderase and RNA ligase ribozymes and several classes of protein enzymes, including DNA polymerases, phosphotriesterases, β-galactosidases and thiolactonases. We also describe the application of emulsion PCR to screen for rare mutations and for new ultra-high throughput sequencing technologies. Finally, we discuss the recent development of microfluidic tools for making and manipulating microdroplets and their likely impact on the future development of the field.