Optical microsystems typically include photosensitive devices, analog preprocessing circuitry and digital signal processing electronics. The advances in semiconductor technology have made it possible today to integrate all photosensitive and electronical devices on one 'smart image sensor' or photo-ASIC (application-specific integrated circuits containing photosensitive elements). It is even possible to provide each 'smart pixel' with additional photoelectronic functionality, without compromising the fill factor substantially. This technological capability is the basis for advanced cameras and optical microsystems showing novel on-chip functionality: Single-chip cameras with on- chip analog-to-digital converters for less than $10 are advertised; image sensors have been developed including novel functionality such as real-time selectable pixel size and shape, the capability of performing arbitrary convolutions simultaneously with the exposure, as well as variable, programmable offset and sensitivity of the pixels leading to image sensors with a dynamic range exceeding 150 dB. Smart image sensors have been demonstrated offering synchronous detection and demodulation capabilities in each pixel (lock-in CCD), and conventional image sensors are combined with an on-chip digital processor for complete, single-chip image acquisition and processing systems. Technological problems of the monolithic integration of smart image sensors include offset non-uniformities, temperature variations of electronic properties, imperfect matching of circuit parameters, etc. These problems can often be overcome either by designing additional compensation circuitry or by providing digital correction routines. Where necessary for technological or economic reasons, smart image sensors can also be combined with or realized as hybrids, making use of commercially available electronic components. It is concluded that the possibilities offered by custom smart image sensors will influence the design and the performance of future electronic imaging systems in many disciplines, reaching from optical metrology to machine vision on the factory floor and in robotics applications.