In the fields of medicine, biotechnology, and pharmacology, drug discovery is the process by which new drugs are discovered.
Historically, drugs were discovered by identifying the active ingredient from traditional remedies or by serendipitous discovery. Later chemical libraries of synthetic small molecules, natural products, or extracts were screened in intact cells or whole organisms to identify substances that have a desirable therapeutic effect in a process known as classical pharmacology.  Since sequencing of the human genome which allowed rapid cloning and synthesis of large quantities of purified proteins, it has become common practice to use high throughput screening of large compound libraries against isolated biological targets which are hypothesized to be disease-modifying in a process known as reverse pharmacology. Hits from these screens are then tested in cells and then in animals for efficacy. Even more recently, scientists have been able to understand the shape of biological molecules at the atomic level and to use that knowledge to design (see drug design) drug candidates.
Modern drug discovery involves the identification of screening hits, medicinal chemistry, and optimization of those hits to increase the affinity, selectivity (to reduce the potential of side effects), efficacy/potency, metabolic stability (to increase the half-life), and oral bioavailability. Once a compound that fulfills all of these requirements has been identified, it will begin the process of drug development prior to clinical trials. One or more of these steps may, but not necessarily, involve computer-aided drug design.
Despite advances in technology and understanding of biological systems, drug discovery is still a lengthy, "expensive, difficult, and inefficient process" with a low rate of new therapeutic discovery. In 2010, the research and development cost of each new molecular entity (NME) was approximately US$1.8 billion. Drug discovery is done by pharmaceutical companies, sometimes with research assistance from universities. The "final product" of drug discovery is a patent on the potential drug. The drug requires very expensive Phase I, II, and III clinical trials, and most of them fail. Small companies have a critical role, often then selling the rights to larger companies that have the resources to run the clinical trials.
Drug discovery is different from Drug Development. Drug Discovery is often considered the process of identifying new medicine. At the same time, Drug development is delivering a new drug molecule into clinical practice. In its broad definition, this encompasses all steps from the basic research process of finding a suitable molecular target to supporting the drug's commercial launch.