Type I interferons (IFNs) exert their effects through the induction of hundreds of IFN-stimulated genes (ISGs), many of which function by inhibiting viral replication and modulating immune responses. ISG15, a di-ubiquitin-like protein, is one of the most abundantly induced ISGs and is critical for control of certain viral and bacterial infections. Like ubiquitin, ISG15 is covalently conjugated to target proteins. In addition, free unconjugated ISG15 is present both intra- and extracellularly. Although much remains to be learned about conjugated ISG15, even less is known about the 2 free forms of ISG15. This article focuses on the role that ISG15 plays during the host response to pathogen challenge, in particular on the recent observations describing the immunomodulatory properties of free ISG15 and its potential implication in disease pathogenesis.