Immunomodulatory drugs, such as thalidomide, lenalidomide (Revlimid, CC-5013) and actimid (CC-4047), have a broad spectrum of activity and have shown remarkable responses in patients with multiple myeloma and related hematological diseases, such as myelodysplastic syndrome. They are currently being tested in other cancer types. This review will focus on the preclinical and clinical activity of thalidomide and its more potent immunomodulatory derivatives that are used to treat multiple myeloma. They represent a new class of antitumor agents that not only target the tumor cell directly, but also have significant activity within the bone marrow milieu. These agents have shown high responses in all phases of multiple myeloma, including the upfront setting, relapsed refractory stage and also as maintenance therapy for the disease. They have been used in combination with dexamethasone, chemotherapy and, more recently, with other novel agents, such as proteasome inhibitors. Thalidomide and lenalidomide in combination with dexamethasone have recently been approved by the US FDA for the treatment of multiple myeloma.