Ubiquitin-fold modifier 1 (UFM1) is a ubiquitin-like protein covalently conjugated with intracellular proteins through UFMylation, a process similar to ubiquitylation. Growing lines of evidence regarding not only the structural basis of the components essential for UFMylation but also their biological properties shed light on crucial roles of the UFM1 system in the endoplasmic reticulum (ER), such as ER-phagy and ribosome-associated quality control at the ER, although there are some functions unrelated to the ER. Mouse genetics studies also revealed the indispensable roles of this system in hematopoiesis, liver development, neurogenesis, and chondrogenesis. Of critical importance, mutations of genes encoding core components of the UFM1 system in humans cause hereditary developmental epileptic encephalopathy and Schohat-type osteochondrodysplasia of the epiphysis. Here, we provide a multidisciplinary review of our current understanding of the mechanisms and cellular functions of the UFM1 system as well as its pathophysiological roles, and discuss issues that require resolution.