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In recent years, our understanding of gamma-ray bursts (GRB) prompt emissionhas been revolutionized, due to a combination of new instruments, new analysismethods and novel ideas. In this review, I describe the most recentobservational results and the current theoretical interpretation.Observationally, a major development is the rise of time-resolved spectralanalysis. These led to (I) identification of a distinguished high energycomponent, with GeV photons often seen at a delay; and (II) firm evidence forthe existence of a photospheric (thermal) component in a large number ofbursts. These results triggered many theoretical efforts aimed at understandingthe physical conditions in the inner jet regions from which the prompt photonsare emitted, as well as the spectral diversity observed. I highlight some areasof active theoretical research. These include: (I) understanding the roleplayed by magnetic fields in shaping the dynamics of GRB outflow and spectra;(II) understanding the microphysics of kinetic and magnetic energy transfer,namely accelerating particle to high energies in both shock waves and magneticreconnection layers; (III) understanding how sub-photospheric energydissipation broadens the "Planck" spectrum; and (IV) geometrical lightaberration effects. I highlight some of these efforts, and point towards gapsthat still exist in our knowledge as well as promising directions for thefuture.

Physics of Gamma-Ray Bursts Prompt Emission