Thalidomide is an effective agent to treat over 25 seemingly unrelated dermatological conditions that have an inflammatory or autoimmune basis. The main side-effects of teratogenesis and peripheral neuropathy limit its use. Currently, in Australia no assurance is given as to the quality, safety and efficacy of thalidomide. The use of thalidomide for toxic epidermal necrolysis can lead to an increase in mortality, and its use as a prophylactic agent for the prevention of chronic graft-versus-host disease following bone marrow transplantation has raised more speculations as to the safety of this notorious drug. A review of the therapeutic indications for thalidomide in dermatology as well as the mechanisms of action and side-effects of this drug are presented. The current suggested guidelines for its use in clinical practice in Australia are discussed.