Power systems are undergoing massive operational and technological changes amid increasing demand for environmental sustainability and energy efficiency. The traditional supply-driven approach, relying on large-scale generation plants, which dominated old utilities is reconsidered to incorporate the increased penetration of variable renewable energy sources, and distributed generation and storage. Demand response is an important instrument for improving energy efficiency, since it increases consumers' engagement and provides a mechanism to reduce or shift consumption, resulting in energy savings. Regulators and policy makers in several European countries are taking substantial measures to encourage market uptake of demand response as a means to mitigate the limitations of the existing grid and boost the transition to a low carbon economy. This goes hand in hand with the deployment of services by stakeholders who aggregate consumption flexibility and offer it to grid operators or to the electricity market. Several large-scale pilot projects explore the feasibility of demand response in residential and small commercial customers. This article provides an overview of the current regulatory and policy framework in Europe, and summarizes the state of play of commercial and pilot demand response deployments in various European countries. Also, it highlights some key research objectives associated with demand response.