Solid-state lighting (SSL) technologies such as light emitting diodes (LEDs) have been of interest for the last 15 years. This article focuses on inorganic LED technology and their evolving applications, energy efficiency, and economic impact as well as the effect of thermal management on LED lighting systems. The efficacy of the best commercial 1W LED packages currently surpasses 120 lm/W, which is more efficient than typical metal-halide and fluorescent lamps. This high efficacy will eventually allow LED lighting systems to be used in specialty and general illumination applications. However, higher lumen requirements for LED systems will inevitably lead to significant thermal challenges at both the chip and the system level that need to be addressed to enable practical applications at low costs. In this article, the basics of LED lighting will be discussed first. It will be followed by the potential economic benefits for high efficiency LED lighting systems in the general illumination market. We will then discuss the thermal challenges and possible candidate cooling technologies in LED lighting systems. Copyright (c) 2009 John Wiley & Sons, Ltd.