While the service literature repeatedly emphasizes the role of empathy in service interactions, studies on empathy in customeremployee interactions are nearly absent. This study defines and conceptualizes employee and customer empathy as multidimensional constructs and empirically investigates their impact on customer satisfaction and customer loyalty. A quantitative study based on dyadic data and a multilevel modeling approach finds support for two effects of empathy in service interactions. The study reveals that customer empathy strengthens the positive effect of employee empathy on customer satisfaction, leading to more "symbiotic interactions." The findings also indicate that empathic customers are more likely to respond to a dissatisfying encounter with "forgiveness," in the sense that customer empathy is able to mitigate negative effects of customer dissatisfaction on customer loyalty. From these empirical results, the authors derive several implications for service research and the management of service encounters. In particular, the present study provides a valuable basis for strategies of "interaction routing," that is, matching customers and employees on the basis of their psychological profiles to create smooth and satisfying service interactions. The authors elaborate on approaches to implement this strategy in service organizations.