Despite several decades of research, the characteristics distinguishing atypical depression from other depressive subtypes remain ambiguous. Multiple lines of evidence support the designation of atypical depression as a scientifically and clinically relevant subtype, including differences in hormonal responses, brain laterality, psychological profile and psychiatric co-morbidity and differential treatment response. The evolution of the diagnostic criteria for atypical depression has led to the designation of mood reactivity as the cardinal feature, and the research supporting this conclusion is reviewed. This paper also reviews the evidence for the drug treatment of atypical depression, with a particular focus on research related to the superior efficacy of monoamine oxidase inhibitors (MAOIs) compared with tricyclic antidepressants (TCAs). Data relevant to the efficacy of newer antidepressants, including selective serotonin reuptake inhibitors (SSRIs), serotonin-noradrenaline (norepinephrine) reuptake inhibitors, transdermal selegiline and other new agents for atypical depression, are discussed. In summary, the diagnostic reliability and validity of atypical depression still remain elusive and open to further evolution. Currently available findings suggest that atypical depression has preferential response to MAOIs over TCAs. More data are required to determine the efficacy of newer agents relative to MAOIs and TCAs, although limited studies have shown a non-inferior efficacy and better tolerability of newer agents such as SSRIs compared with those of MAOIs and TCAs. Finally, future directions for research include further refinement of the diagnostic criteria for atypical depression, and clarification of the role of newer antidepressants in the treatment of this subtype with evidence from randomized, controlled trials.