Because of methotrexate's well-documented efficacy in the treatment of rheumatoid arthritis, it is important that we understand the mechanism of action of this drug. There are two biochemical mechanisms by which methotrexate may modulate inflammation: (1) promotion of adenosine release and (2) inhibition of transmethylation reactions. Evidence is reviewed that favors the notion that the endogenous anti-inflammatory autocoid adenosine mediates the anti-inflammatory effects of methotrexate. This insight should aid in the design of new agents for the treatment of rheumatoid arthritis and other inflammatory diseases.