There is a need for faster and more sensitive algorithms for sequence similarity searching in view of the rapidly increasing amounts of genomic sequence data available. Parallel processing capabilities in the form of the single instruction, multiple data (SIMD) technology are now available in common microprocessors and enable a single microprocessor to perform many operations in parallel. The ParAlign algorithm has been specifically designed to take advantage of this technology. The new algorithm initially exploits parallelism to perform a very rapid computation of the exact optimal ungapped alignment score for all diagonals in the alignment matrix. Then, a novel heuristic is employed to compute an approximate score of a gapped alignment by combining the scores of several diagonals. This approximate score is used to select the most interesting database sequences for a subsequent Smith-Waterman alignment, which is also parallelised. The resulting method represents a substantial improvement compared to existing heuristics. The sensitivity and specificity of ParAlign was found to be as good as Smith-Waterman implementations when the same method for computing the statistical significance of the matches was used. In terms of speed, only the significantly less sensitive NCBI BLAST 2 program was found to outperform the new approach. Online searches are available at http://dna.uio.no/search/