The host response to viral infection includes the induction of type I interferons and the subsequent upregulation of hundreds of interferon-stimulated genes. Ubiquitin-like protein ISG15 is an interferon-induced protein that has been implicated as a central player in the host antiviral response. Over the past 15 years, efforts to understand how ISG15 protects the host during infection have revealed that its actions are diverse and pathogen-dependent. In this Review, we describe new insights into how ISG15 directly inhibits viral replication and discuss the recent finding that ISG15 modulates the host damage and repair response, immune response and other host signalling pathways. We also explore the viral immune-evasion strategies that counteract the actions of ISG15. These findings are integrated with a discussion of the recent identification of ISG15-deficient individuals and a cellular receptor for ISG15 that provides new insights into how ISG15 shapes the host response to viral infection.