Physical modelling of musical instruments is an exciting new paradigm in digital sound synthesis. The basic idea is to imitate the sound production mechanism of an acoustic musical instrument using a computer program. The sound produced by such a model will automatically resemble that of the real instrument, if the model has been devised in a proper way. In this article we review the history and present techniques of physical modelling. It appears that the many seemingly very different modelling methods try to achieve the same result: to simulate the solutions of the wave equation in a simplified manner. We concentrate on the digital waveguide modelling technique which has gained much popularity among both researchers and engineers in the music technology industry. The benefits and drawbacks of the new technology are considered, and concurrent research topics are discussed. The physical modelling approach offers many new applications, especially in the fields of multimedia and virtual reality.