Despite numerous clinical studies indicating the clinical relevance of circulating tumor cells (CTCs) in blood and disseminated tumor cells (DTCs) in the bone marrow of cancer patients, the functional properties of these cells are largely unknown. The focus of this review is to emphasize how functional studies on viable CTCs and DTCs can enlarge the spectrum of applications of "liquid biopsies". The low number of CTCs in the peripheral blood and DTCs in the bone marrow and the fact that carcinoma cells are difficult to culture are major challenges. Significant advances in the in vitro and in vivo expansion of CTCs and DTCs from cancer patients have been achieved, which enable us now to study the functional properties of these cells. Here, we discuss published data about functional studies on CTCs and DTCs using in vitro cultivation and in vivo xenograft models. Functional analyses on CTCs and DTCs offer the possibility to identify the metastasis-initiating cells. Moreover, CTC-derived cell lines and xenografts might point to new therapeutic targets and can be used for drug development.