The quantum-stochastic-differential-equation formulation of driven quantum-optical systems is carried out in the interaction picture, and quantum stochastic differential equations for wave functions are derived on the basis of physical principles. The Ito form is shown to be the most practical, since it already contains all the radiation reaction terms. The connection between this formulation and the master equation is shown to be very straightforward. In particular, a direct connection is made to the theory of continuous measurements, which leads directly to the method of quantum-jump simulations of solutions of the master equation. It is also shown that all conceivable spectral and correlation-function information in output fields is accessible by means of an augmentation of the simulation process. Finally, the question of the reality of the jumps used in the simulations is posed.