The revival of thalidomide began shortly after the drug was withdrawn from the market because of its teratogenic properties. Therapeutic effects of thalidomide were found accidentally in leprosy patients with erythema nodosum leprosum (ENL). Subsequent research widened the understanding of the activity of thalidomide, and with improved methodology and the augmented background knowledge of immunology it was possible to interpret the properties of thalidomide more coherently.Effects on tumour necrosis factor-α (TNFα) release play an important role in the ability of thalidomide to affect the immune system. Alteration of synthesis and release of cytokines such as interleukin (IL)-1, IL-2, IL-4, IL-6, IL-8, IL-10, IL-12 and interferon-γ is involved in the complex mechanisms of thalidomide. Thalidomide targets leucocytes, endothelial cells and keratinocytes, affecting them in a different manner and at different cellular levels. Changes in the density of adhesion molecules alter leucocyte extravasation and the inflammatory response in the tissue involved. Several mechanisms for the teratogenic action of thalidomide are currently under review, but this mode of action of the drug still remains unclear and we review evidence-based hypotheses for the teratogenicity of thalidomide.Thalidomide shows significant clinical impact in several diseases such as ENL in lepromatous leprosy, chronic graft-versus-host disease, systemic lupus erythematosus, sarcoidosis, aphthous lesions in HIV infection, wasting syndrome in chronic illness, inflammatory bowel disease, multiple myeloma and some solid tumours. In 1998 the US Food and Drug Administration approved thalidomide exclusively for the treatment of ENL, and strict conditions were stipulated for its use in order to prevent teratogenic adverse effects. However, despite the promising findings of thalidomide at the molecular level, namely its anti-TNFα properties and its intercalation with DNA, and activity in clinical trials, there is still a great need for more intensive research.