Pneumolysin, a member of the thiol-activated cytolysin family of toxins, is a virulence factor from the Gram-positive bacterium Streptococcus pneumoniae. The toxin forms large oligomeric pores in cholesterol-containing membranes of eukaryotic cells. A plethora of biochemical and mutagenesis data have been published on pneumolysin, since its initial characterization in the 1930s. Here we present an homology model of the monomeric and oligomeric forms of pneumolysin based on the recently determined crystal structure of perfringolysin O and electron microscopy data. A feature of the model is a striking electronegative surface on parts of pneumolysin that may reflect its cytosolic location in the bacterial cell. The models provide a molecular basis for understanding the effects of published mutagenesis and biochemical modifications on the toxic activity of pneumolysin. In addition, spectroscopic data are presented that shed new light on pneumolysin activity and have guided us to hypothesise a detailed model of membrane insertion. These data show that the environment of some tryptophan residues changes on insertion and/or pore formation. In particular, spectroscopic analysis of a tryptophan mutant, W433F, suggests it is the residue mainly responsible for the observed effects. Furthermore, there is no change in the secondary structure content when the toxin inserts into membranes. Finally, the basis of the very low activity shown by a pneumolysin molecule from another strain of S. pneumoniae may be due to the movements of a key domain-domain interface. The molecular basis of pneumolysin-induced complement activation may be related to the structural similarity of one of the domains of pneumolysin to Fc, rather than the presumed homology of the toxin to C-reactive protein as previously suggested.