​A placebo is an inactive pill or liquid that looks like the study treatment. A placebo may be used if the new treatment is being compared to no active treatment, so that it is not possible to tell whether the patient is receiving the treatment or not. In these cases, the standard or usual treatment for the patient would be no treatment, and the question being asked would be whether the new treatment is better than no treatment for the particular condition.

Another situation in which a placebo might be used is when it is impossible to make the two treatments look the same. In this case, the only way to "blind" the patient and doctor is to give every patient both an active treatment and a placebo treatment, so that they're not sure which type of active treatment they are on. For example, if the study is comparing a pill treatment to an injection, the patients getting the injection might also have to take a placebo pill, which looks just like the drug pill, while the patients receiving the drug pill might have to receive a placebo injection, which looks just like the drug injection. Although this sounds complicated, it is often necessary, to make sure that the correct conclusions are drawn about a treatment's effectiveness, side effects, and impact on a patient's quality of life.

Not all phase III trials are blinded, as sometimes it is impossible to safely blind patients and doctors. If a patient's treatment is blinded, and a medical emergency occurs that would require the doctor to know what treatment was received by the patient, the doctor can "unblind" the treatment, and find out what treatment was administered, usually by phoning the coordinators of the study.