Herbivorous and carnivorous arthropods use plant volatiles when foraging for food. In response to herbivory, plants emit a blend that may be quantitatively and qualitatively different from the blend emitted when intact. This induced volatile blend alters the interactions of the plant with its environment. We review recent developments regarding the induction mechanism as well as the ecological consequences in a multitrophic and evolutionary context. It has been well established that carnivores (predators and parasitoids) are attracted by the volatiles induced by their herbivorous victims. This concerns an active plant response. In the case of attraction of predators, this is likely to result in a fitness benefit to the plant, because through consumption a predator removes the herbivores from the plant. However, the benefit to the plant is less clear when parasitoids are attracted, because parasitisation does usually not result in an instantaneous or in a complete termination of consumption by the herbivore. Recently, empirical evidence has been obtained that shows that the plant's response can increase plant fitness, in terms of seed production, due to a reduced consumption rate of parasitized herbivores. However, apart from a benefit from attracting carnivores, the induced volatiles can have a serious cost because there is an increasing number of studies that show that herbivores can be attracted. However, this does not necessarily result in settlement of the herbivores on the emitting plant. The presence of cues from herbivores and/or carnivores that indicate that the plant is a competitor- and/or enemy-dense space, may lead to an avoidance response. Thus, the benefit of emission of induced volatiles is likely to depend on the prevailing faunal composition. Whether plants can adjust their response and influence the emission of the induced volatiles, taking the prevalent environmental conditions into account, is an interesting question that needs to be addressed. The induced volatiles may also affect interactions of the emitting plant with its neighbours, e.g., through altered competitive ability or by the neighbour exploiting the emitted information. Major questions to be addressed in this research field comprise mechanistic aspects, such as the identification of the minimally effective blend of volatiles that explains the attraction of carnivores to herbivore-infested plants, and evolutionary aspects such as the fitness consequences of induced volatiles. The elucidation of mechanistic aspects is important for addressing ecological and evolutionary questions. For instance, an important tool to address ecological and evolutionary aspects would be to have plant pairs that differ in only a single trait. Such plants are likely to become available in the near future as a result of mechanistic studies on signal-transduction pathways and an increased interest in molecular genetics.