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Of course one of the main tools is the .NET Framework itself
This is currently in Beta 2. Free download. It requires Windows98 and "up".
The big Kahuna is Visual Studio.NET.
The "Release Candidate" is now out and available for download by MSDN subscribers. Non-subscribers can order the DVD for $10.95 shipping and handling. The beta 2 version is available on CD & DVD.
There's an open source IDE for C# and VB.NET development called SharpDevelop
This is actually what I've been using. I'd heard horror stories about people installing Visual Studio.NET so I'd been shying away from that (but I'd hope the Release Candidate isn't nearly as problematic). So far SharpDevelop does everything I need in an IDE. There is very little documentation for it (the help is mostly empty) but it is pretty intuitive.
One curveball was that I couldn't get "Run" to work. But that's not a big deal, since "Compile" works fine and it's easy enough to just double-click the exe outside of SharpDevelop, to run your app.