Lateral ankle sprain (LAS) is an extremely common athletic injury. Despite extensive clinical and basic science research, the recurrence rate remains high. Functional instability (FI) following LAS is hypothesised to predispose individuals to reinjury because of neuromuscular deficits which result following injury. This paper provides an overview of the potential causes of FI which may manifest themselves clinically. The theoretical explanations of FI are discussed, as are implications for assessment and treatment of FI following LAS. When LAS occurs, structural damage not only occurs to the ligamentous tissue, but also to the nervous and musculotendinous tissue around the ankle complex. While injury to the ligaments may result in laxity of the joints of the ankle complex, neuromuscular deficits are also likely to occur due to the injury to the nervous and musculotendinous tissue. These neuromuscular deficits may be manifested as impaired balance, reduced joint position sense, slower firing of the peroneal muscles to inversion perturbation of the ankle, slowed nerve conduction velocity, impaired cutaneous sensation, strength deficits and decreased dorsiflexion range of motion. Additionally, the abnormal formation of scar tissue after injury may lead to sinus tarsi syndrome or anterolateral impingement syndrome, which may also lead to FI of the ankle complex. Assessment of patients with LAS must address not only joint laxity and swelling, but should include examination for neuromuscular deficits as well. The treatment and rehabilitation goals must also address restoration of neuromuscular function, as well as restoration of mechanical stability to the injured joints.