With the exponential growth in the determination of protein sequences and structures via genome sequencing and structural genomics efforts, there is a growing need for reliable computational methods to determine the biochemical function of these proteins. This paper reviews the efforts to address the challenge of annotating the function at the molecular level of uncharacterized proteins. While sequence- and three-dimensional-structure-based methods for protein function prediction have been reviewed previously, the recent trends in local structure-based methods have received less attention. These local structure-based methods are the primary focus of this review. Computational methods have been developed to predict the residues important for catalysis and the local spatial arrangements of these residues can be used to identify protein function. In addition, the combination of different types of methods can help obtain more information and better predictions of function for proteins of unknown function. Global initiatives, including the Enzyme Function Initiative (EFI), COMputational BRidges to EXperiments (COMBREX), and the Critical Assessment of Function Annotation (CAFA), are evaluating and testing the different approaches to predicting the function of proteins of unknown function. These initiatives and global collaborations will increase the capability and reliability of methods to predict biochemical function computationally and will add substantial value to the current volume of structural genomics data by reducing the number of absent or inaccurate functional annotations.