Cyclophosphamide (CTX) is an alkylating cytotoxic drug that primarily affects proliferating lymphocytes. CTX has been extensively used as a chemotherapeutic and disease-modifying agent against certain solid tumors, lymphomas, and some autoimmune conditions. Depending on its dose and timing of administration, CTX can also enhance immune responses. These opposing immune functions of CTX have been investigated in numerous animal models and recent clinical studies. Administration of CTX augments delayed type 1 hypersensitivity (DTH) reactions, can precipitate type 1 diabetes, and boosts antitumor responses in both vaccination and adoptive cell transfer models. Although the mechanisms by which CTX elicits these effects are not fully understood, CTX treatment has a differential effect on lymphocyte compartments, rapidly depleting B and T cells. This is followed by a recovery phase characterized by extensive proliferation and bone marrow mobilization. The proposed underlying mechanisms of augmentation of immune responses include the facilitation of homing and homeostatic proliferation by the creation of space, the skewing of Th2/Th1 responses due to the cytokine storm during the recovery phase, and the removal or inhibition of a suppressor cell population. With the identification of naturally occurring and peripheral regulatory T cells, recent studies have re-evaluated these hypotheses and suggest that CTX inhibits the function of Foxp3+ regulatory T cells. In this review, we critically evaluate relevant historical and recent data on CTX-mediated immunomodulation and discuss the resulting implications for immunotherapy.