Thalidomide has recently shown considerable promise in the treatment of a number of conditions, such as leprosy and cancer. Its effectiveness in the clinic has been ascribed to wide-ranging properties, including anti-TNF-alpha, T-cell costimulatory and antiangiogenic activity. Novel compounds with improved immunomodulatory activity and side effect profiles are also being evaluated. These include selective cytokine inhibitory drugs (SelCIDs), with greatly improved TNF-alpha inhibitory activity, and immunomodulatory drugs (IMiDs) that are structural analogs of thalidomide, with improved properties. A third group recently identified within the SelCID group, with phosphodiesterase type 4-independent activity, is in the process of being characterized in laboratory studies. This review describes the emerging immunological properties of thalidomide, from a historical context to present-day clinical applications, most notably in multiple myeloma but also in other cancers, inflammatory disease, and HIV. We also describe the laboratory studies that have led to the characterization and development of SelCIDs and IMiDs into potentially clinically relevant drugs. Early trial data suggest that these novel immunomodulatory compounds may supercede thalidomide to become established therapies, particularly in certain cancers. Further evidence is required, however, to correlate the clinical efficacy of these compounds with their known immunomodulatory, antiangiogenic, and antitumor properties.