The effects of the thin air layer entering play when a water droplet impacts on otherwise still water or on a fixed solid are studied theoretically with special attention on surface tension and on post-impact behaviour. The investigation is based on the small density and viscosity ratios of the two fluids. In certain circumstances, and in particular for droplet Reynolds numbers below a critical value which is about ten million, the air-water interaction depends to leading order on lubricating forces in the air coupled with potential flow dynamics in the water. The nonlinear integro-differential system for the evolution of the interface and induced pressure is studied for pre-impact surface tension effects, which significantly delay impact, and for post-impact interaction phenomena which include significant decrease of the droplet spread rate. Above-critical Reynolds numbers are also considered.