We review the current state-of-the-art of diffuse optical imaging, which is an emerging technique for functional imaging of biological tissue. It involves generating images using measurements of visible or near-infrared light scattered across large (greater than several centimetres) thicknesses of tissue. We discuss recent advances in experimental methods and instrumentation, and examine new theoretical techniques applied to modelling and image reconstruction. We review recent work on in vivo applications including imaging the breast and brain, and examine future challenges.