Thalidomide and its derivatives are immunomodulatory drugs (IMiDs) known for their sedative, teratogenic, anti-angiogenic, and anti-inflammatory properties. Commonly used in the treatment of cancers such as multiple myeloma and myelodysplastic syndrome (MDS), IMiDs have also been used in the treatment of an inflammatory skin pathology associated with Hansen's disease/leprosy. They have also shown promise in the treatment of autoimmune disorders including systemic lupus erythmatosus (SLE) and inflammatory bowel disease (IBD). Recent structural and experimental observations have revolutionized our understanding of these properties by revealing the fundamental molecular events underpinning IMiD activity. We review these findings, their relevance to IMiD therapy in immunological disorders, and discuss how further research might unlock the vast clinical potential of these compounds.