We have developed a new numerical technique, called Green's-function reaction dynamics (GFRD), that makes it possible to simulate biochemical networks at the particle level and in both time and space. In this scheme, a maximum time step is chosen such that only single particles or pairs of particles have to be considered. For these particles, the Smoluchowski equation can be solved analytically using Green's functions. The main idea of GFRD is to exploit the exact solution of the Smoluchoswki equation to set up an event-driven algorithm, which combines in one step the propagation of the particles in space with the reactions between them. The event-driven nature allows GFRD to make large jumps in time and space when the particles are far apart from each other. Here, we apply the technique to a simple model of gene expression. The simulations reveal that spatial fluctuations can be a major source of noise in biochemical networks. The calculations also show that GFRD is highly efficient. Under biologically relevant conditions, GFRD is up to five orders of magnitude faster than conventional particle-based techniques for simulating biochemical networks in time and space. GFRD is not limited to biochemical networks. It can also be applied to a large number of other reaction-diffusion problems.