Sepsis remains a leading cause of global mortality and is characterized by a dysregulated host immune response to infection. Early deaths often result from hyperinflammation and organ dysfunction, whereas late-stage mortality is increasingly attributed to sepsis-induced immunosuppression, leading to secondary infections and viral reactivation. Challenges persist in the identification and management of sepsis-induced immunosuppression, including the lack of standardized immune monitoring methods, the absence of reliable immune biomarkers to guide therapy, and the limited success of immunomodulatory therapies in clinical trials. This review comprehensively summarizes the pathophysiology of sepsis-induced immunosuppression, encompassing immune cell apoptosis and exhaustion, the expansion and activation of immunomodulatory cells, metabolic reprogramming, epigenetic alterations, and iatrogenic factors. We also discuss current diagnostic challenges and explore emerging immunomodulatory strategies, such as cytokine therapies, immune checkpoint inhibitors, and metabolic modulators, as potential approaches to restore immune function. Finally, we highlight the importance of immune phenotyping and individualized precision medicine in the future management of sepsis, and integrating multidisciplinary approaches from mechanistic research to targeted therapies holds promise for improving patient outcomes.