Multiple-choice questions (MCQ) are particularly efficient in measuring achievement in large student groups. Due to the high number of tests in the bachelor-master-system, German universities administer MCQ exams with increasing frequency. So what is the diagnostic quality of exams using MCQ and which assets and drawbacks are associated with MCQ application? In the course of this literature review we draw four essential conclusions: (1) High quality MCQ share similar diagnostic characteristics with constructed-response questions in many cases. (2) There are potent strategies to address (the problem of) guessing in MCQ. (3) Effects of MCQ on learning and testing strategies are hardly avoidable. (4) The multiple-response and multiple-true-false format as well as computer-based MCQ-formats are particularly suitable for university exams. Additionally, we identify a considerable lack of research in this area and propose research desiderata so that the diagnostic value of MCQ in higher education can be reliably evaluated in the future.