Pseudogenes, which have long been described as “fossils”, play a very important role in eukaryotic genomes. Recently, studies on the so called “junk gene” have attracted more attention. Far from being silent, pseudogenes participate in various biological activities, including being a part in the transcription process, or participating in the formation of small interfering RNA (siRNA) which regulated gene expression by means of the RNA-interference pathway. Recent studies have also shown that pseudogenes regulate tumor suppression through competing for the microRNA (miRNA) with their parent genes. However, a deeper understanding of function analysis of pseudogenes depends on the comprehensive and accurate identification. With the sequencing completion of many genomes and the innovation of bioinformatics tools, efficient and precise identification of pseudogenes have become available in a genome-wide scale. Our review focused particularly on the method of pseudogene identification, the mechanism of its regulatory roles and its potential to be applied in directed evolution. Besides, the promising research direction of pseudogenes was proposed.