Interstitial lung disease (ILD) represents a heterogeneous group of diseases in which inflammation and/or fibrosis in the pulmonary interstitium results in an impaired gas exchange, difficulties in breathing, and reduced quality of daily life, and contributes to elevated global morbidity and mortality rates. ILD is an umbrella term, with idiopathic pulmonary fibrosis (IPF) being a prime focus because of its progressive and severe form. Out of 300 underlying etiologies, ILD is one of the major reasons for global morbidity and mortality. This review offers a comprehensive overview of six main categories of ILD covering autoimmune, idiopathic interstitial pneumonia, hypersensitivity pneumonitis, drug-induced, infection-related, and unclassified ILD that underscore the complexity of diagnosis and treatment challenges. This review also provides an evidence-based overview of recent advancements in the diagnosis and management of ILD, with precision pharmacotherapy, multidisciplinary care, and emerging therapeutic strategies. From clinical trial data, it also recommends the disease-specific use of pharmacological agents-such as pirfenidone and nintedanib for IPF, and mycophenolate mofetil for connective tissue disease-associated ILD. The manuscript also emphasizes the evolving role of non-pharmacological interventions, including the 6-minute walk test and pulmonary rehabilitation, in enhancing functional capacity and quality of life. To address the current global health concerns, topics of post-COVID-19 ILD and immune checkpoint inhibitor-associated lung disease are integrated. Additionally, future directions are explored, including the role of lung transplantation and novel antifibrotic therapies like anti-Transforming Growth Factor (TGF)-β antibody cocktails. Together, these insights aim to refine diagnostic precision, personalize treatment, and improve clinical outcomes across the heterogeneous ILD spectrum.