The glow of a starry night sky, the smell of a freshly brewed cup of coffee or the sound of ocean waves breaking on the beach are representations of the physical world that have been created by the dynamic interactions of thousands of neurons in our brains. How the brain mediates perceptions, creates thoughts, stores memories and initiates actions remains one of the most profound puzzles in biology, if not all of science. A key to a mechanistic understanding of how the nervous system works is the ability to analyze the dynamics of neuronal networks in the living organism in the context of sensory stimulation and behaviour. Dynamic brain properties have been fairly well characterized on the microscopic level of individual neurons and on the macroscopic level of whole brain areas largely with the help of various electrophysiological techniques. However, our understanding of the mesoscopic level comprising local populations of hundreds to thousands of neurons (so called 'microcircuits') remains comparably poor. In large parts, this has been due to the technical difficulties involved in recording from large networks of neurons with single-cell spatial resolution and near- millisecond temporal resolution in the brain of living animals. In recent years, two-photon microscopy has emerged as a technique which meets many of these requirements and thus has become the method of choice for the interrogation of local neural circuits. Here, we review the state-of-research in the field of two-photon imaging of neuronal populations, covering the topics of microscope technology, suitable fluorescent indicator dyes, staining techniques, and in particular analysis techniques for extracting relevant information from the fluorescence data. We expect that functional analysis of neural networks using two-photon imaging will help to decipher fundamental operational principles of neural microcircuits.