Immunomodulatory drugs (IMiDs) have been used in hematologic malignancies for the last decade. However, the mechanism of action of IMiDs is largely unknown. Here we provide a comprehensive overview of pivotal studies, recent advances in the application of IMiDs in cancer as well as their effects on hematopoietic stem cells including the risk of secondary malignancies. IMiDs have a well-established role as first-line therapy for patients with newly diagnosed and relapsed/refractory multiple myeloma (MM). Variant combinations of IMiDs with other chemotherapy reagents show promising outcomes in MM. Recent concerns on increased rate of secondary cancer in MM patients treated with maintenance lenalidomide were raised. But analysis of maintenance studies showed that the benefit of maintenance outweighs the risk of secondary cancers in MM. IMiDs also show efficacy in myelodysplastic syndrome (MDS)/acute myeloid leukemia (AML), chronic lymphocytic leukemia (CLL), Non-Hodgkin's lymphoma (NHL) and myelofibrosis (MF), but not in solid tumors. The major adverse effects are venous thromboembolism, neuropathy and cytopenias. IMiDs induce expansion and self-renewal of CD34+ hematopoietic progenitors and inhibit lineage maturation/differentiation by affecting critical transcription factors which might contribute to myelosuppression effect of IMiDs.