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The placebo effect has been a source of fascination, irritation, and confusion within biomedicine over the past 60 years. Although scientific investigation has accelerated in the past decade, with particular attention to neurobiological mechanisms, there has been a dearth of attention to developing a general theory of the placebo effect. In this article, we attempt to address this gap. To set the stage, we review evidence relating to the reality and clinical significance of the placebo effect. Next we investigate the scope and limits of the placebo effect by examining the hypothesis that the placebo effect operates predominantly by modifying the experience and perceptions of illness symptoms, such as pain, anxiety, and fatigue, rather than by modifying the pathophysiology of disease. Based on this background, we characterize the placebo effect as a form of interpersonal healing, as distinct from spontaneous natural healing and from technological healing dependent on physiologically active pharmaceuticals or procedures. Finally, we argue that research on the placebo effect has the potential to revitalize the art of medicine.