This article reviews the physics of colloidal dispersions in nematic liquid crystals as a novel challenging type of soft matter. We first investigate the nematic environment of one particle with a radial anchoring of the director at its surface. Three possible structures are identified and discussed in detail; the dipole, the Saturn-ring and the surface-ring configuration. Secondly, we address dipolar and quadrupolar two-particle interactions with the help of a phenomenological theory, Thirdly, we calculate the anisotropic Stokes drag of a particle in a nematic environment which determines the Brownian motion of particles via the Stokes-Einstein relation. We then turn our interest towards colloidal dispersions in complex geometries where we identify the dipolar configuration and study its formation. Finally, we demonstrate that surface-induced nematic order above the nematic-isotropic phase transition results in a strongly attractive but short-range two-particle interaction. Its strength can be controlled by temperature and thereby induce flocculation in an otherwise stabilized dispersion. (C) 2001 Elsevier Science B.V. All rights reserved.