Bhut jolokia, which is a cultivar of Capsicum chinense Jacq. is known to the world for its high capsaicinoids content. While wild C. chinense forms may be found in eastern lowland of South America, bhut jolokia is grown in the northeastern states of India. Evidences show that bhut jolokia has interspecific origin with introgression of genes of C. frutecens into C. chinense a natural hybridisation. The fruit of the plant and its leaves has been used as ethnobotanical medicine in different parts of the world. Phytochemical analysis has shown that the fruit is rich in capsaicinoids, which is the reason for its high pungency. Capsaicin and dihydrocapsaicin are the two major capsaicinoids adding pungency to chilli. Higher the capsaicin higher is the pungency. Recent studies has shown wide medicinal applications of capsaicin such as pain relief, anti-obesity treatment, as an antioxidant, antimicrobial agent and even as anticancer molecule. The government of Nagaland has patent rights and geographical indications for naga chilli, which will certainly help in the economic prospect of the region from its cultivation. Thus, this review is an attempt to highlight the latest research and developments in bhut jolokia, which has a huge economic potential to prosper the northeastern region of India.