(FORTUNE Magazine) – Few medical topics get as much scary press as genetic testing. The typical story: A person learns from a DNA test that he's inherited a faulty gene predisposing him to, say, a fatal brain disease years later. There's no cure, and he becomes a health-insurance pariah while awaiting his horrible fate. Such things are possible, but from all the ruckus, you'd think gene tests were as common as X-rays. They aren't. People generally avoid "predisposition" tests--the annual market for them has languished for years under $10 million, according to Genesis Group, a research firm in Montclair, N.J.

But now a different sort of genetic testing is quietly taking off. Unlike predisposition testing, it involves analyzing genes that make us sick right now. Such genes include ones in infectious microbes or in tumor cells. For instance, a doctor can use one of the new tests to find out whether a seemingly routine infection involves dangerous bacteria with genes conferring resistance to the usual antibiotics.

The payoffs from such tests are so clear that doctors, mainly pathologists at big hospitals, have pressed many into use before they are commercially available. (About 700 doctors across the country have formed a "genetic underground" that offers home-brew DNA tests, says John Stevens, CEO of Visible Genetics, a Toronto maker of DNA sequencers--high-tech devices that analyze genes.) Now a bevy of small companies--Avitech Diagnostics in Malvern, Pa.; Third Wave Technologies in Madison, Wis.; and Visible Genetics, to name a few--plan to supply the underground with better gene analyzing technologies. Third Wave expected to do a year of research before selling its products, but "the DNA-sequencing jocks in hospitals are pulling us bodily into clinical use," says chief operating officer Michael Treble.

Perhaps the hottest of the new tests are ones to "genotype" HIV in AIDS patients. Offered by companies such as Applied Sciences in Norcross, Ga., the tests scan the virus' DNA for mutations that confer drug resistance. HIV is notoriously mutable, and resistance to drugs now used to control it is already appearing. Genotyping the virus lets doctors switch to different drugs as such mutations appear, before a patient's viral level shoots up. Some doctors question whether the tests can catch every important mutation, but the tests' promise is like that of radar in World War II: an early-warning innovation that breaks the enemy's back.

Doctors are also using genotyping to draw a bead on other moving targets such as hepatitis viruses, which cause liver disease. Another use is assessing gene glitches linked to cancer. At the University of Pittsburgh, doctors sometimes check patients with suspected tumors for cancer-associated mutations, like those in "p53" genes. Such mutations often signal fast-spreading cancers; finding one can help pin down a diagnosis and qualify a patient for an experimental therapy to correct the faulty gene.

Much of this is still iffy frontier medicine, but it's fast becoming standard practice for several reasons. Gene analyzers are getting speedier and cheaper. (Visible Genetics boasts it is doing for DNA sequencing what Volkswagen did for cars.) Pathologists and medical geneticists are vying for the diagnostic turf opened up by the new technology, speeding its entry into clinics. And HMOs generally bless the new technology.

Indeed, the huge HMO Kaiser Permanente recently reported a study showing the benefits of genotyping the human papillomavirus, or HPV, with a test offered by Digene, of Beltsville, Md., one of the niches' hot stocks. HPV, which causes warts, infects about 15 million women in the U.S. Certain HPV strains are carcinogenic--some 95% of cervical cancers harbor such strains. Kaiser's study involved 46,000 women who got pap smear tests for cervical cancer. HPV genotyping, which shows whether dangerous variants are present, was done when cells from a smear looked slightly abnormal. The results were impressive: Genotyping flagged probable incipient cancers the smears missed, and ruled out cancer in many patients who traditionally undergo costly follow-ups.

Daniel Farkas, a pathologist at William Beaumont Hospital in Royal Oak, Mich., estimates the number of DNA tests done in pathology labs is growing 25% to 50% annually, with over three million performed at U.S. hospitals this year. The annual market for all types of genetic tests could mushroom from $200 million today to $1 billion in five years, says Raj Barathur, president of LabCyte, a San Diego startup offering new gene tests. Who knows? Gene testing might become as common as X-rays after all.

--David Stipp