Thalidomide and its analogues (lenalidomide and pomalidomide) are small molecule glutamic acid derivatives of the immunomodulatory drug (IMiD) class. In addition to the immuno-adjuvant and anti-inflammatory properties that define an IMiD, the thalidomide analogues demonstrate an overlapping and diverse range of biological activities, including anti-angiogenic, teratogenic and epigenetic effects. Importantly, the IMiDs possess anti-cancer activity with selectivity for molecularly defined subgroups of hematological malignancies, specifically mature B-cell neoplasms and myelodysplasia with deletion of chromosome 5q. Emerging insight into the pathophysiological drivers of these IMiD-responsive disease states can now be synthesized using previously disclosed IMiD activities and recently discovered thalidomide targets to build unifying models of IMiD mechanism of action. Attention to mechanisms of IMiD-induced clinical toxicities, in particular the recently identified association of lenalidomide with second primary malignancies, provides an additional tool for determination of drug mechanism. This review seeks to define the molecular IMiD targets and biological outputs that underpin their anti-neoplastic activity. It is anticipated that elucidation of important IMiD targets will allow the rational development of new-generation therapeutics with the potential to separate thalidomide-analogue efficacy from clinical toxicity.