Transcranial magnetic stimulation (TMS) is a widely used tool for the non-invasive study of basic neurophysiological processes and the relationship between brain and behavior. We review the physical and physiological background of TMS and discuss the large body of perceptual and cognitive studies, mainly in the visual domain, that have been performed with TMS in the past 15 years. We compare TMS with other neurophysiological and neuropsychological research tools and propose that TMS, compared with the classical neuropsychological lesion studies, can make its own unique contribution. As the main focus of this review, we describe the different approaches of combining TMS with functional neuroimaging techniques. We also discuss important shortcomings of TMS, especially the limited knowledge concerning its physiological effects, which often make the interpretation of TMS results ambiguous. We conclude with a critical analysis of the resulting conceptual and methodological limitations that the investigation of functional brain-behavior relationships still has to face. We argue that while some of the methodological limitations of TMS applied alone can be overcome by combination with functional neuroimaging, others will persist until its physical and physiological effects can be controlled.