Abstract This review is a brief discussion on the development of the understanding of hydrophobicity, or the hydrophobic effect. The hydrophobic effect is primarily discussed in terms of partitioning of hydrocarbons between a hydrophobic environment and water as well as solubility of hydrocarbons in water. Micellization of surfactants is only briefly reviewed. It is emphasized that (i) the cause of the hydrophobic effect, e.g. the low solubility of a hydrocarbon in water, is to be found in the high internal energy of water resulting in a high energy to create a cavity in order to accommodate the hydrophobe, (ii) the “structuring” of water molecules around a hydrophobic compound increases the solubility of the hydrophobe. The “structuring” of water molecules around hydrophobic compounds is discussed in terms of recent spectroscopic findings. It is also emphasized that (iii) the lowering of entropy due to a structuring process must be accompanied by an enthalpy that is of the same order of magnitude as the TΔS for the process. Hence, there is an entropy–enthalpy compensation leading to a low free energy change for the structuring process. The assumption of a rapid decay of the entropy with temperature provides an explanation of the enthalpy–entropy compensation so often found in aqueous systems. It is also emphasized (iv) that the free energy obtained from partitioning, or solubility limits, needs to be corrected for molecular size differences between the solute and the solvent. The Flory–Huggins expression is a good first approximation for obtaining this correction. If the effect of different molecular sizes is not corrected for, this leads to erroneous conclusions regarding the thermodynamics of the hydrophobic effect. Finally, (v) micellization and adsorption of surfactants, as well as protein unfolding, are briefly discussed in terms of the hydrophobic effect.