Psychiatric disorders often require pharmacological interventions to alleviate symptoms and improve quality of life. However, achieving an optimal therapeutic outcome is challenging due to several factors, including variability in the individual response, inter-individual differences in drug metabolism, and drug interactions in polytherapy. Therapeutic drug monitoring (TDM), by measuring drug concentrations in biological samples, represents a valuable tool to address these challenges, by tailoring medication regimens to each individual. This review analyzes the current landscape of TDM in psychiatric practice, highlighting its significance in optimizing drug dosages, minimizing adverse effects, and improving therapeutic efficacy. The metabolism of psychiatric medications (i.e., mood stabilizers, antipsychotics, antidepressants) often exhibits significant inter-patient variability. TDM can help address this variability by enhancing treatment personalization, facilitating early suboptimal- or toxic-level detection, and allowing for timely interventions to prevent treatment failure or adverse effects. Furthermore, this review briefly discusses technological advancements and analytical methods supporting the implementation of TDM in psychiatric settings. These innovations enable quick and cost-effective drug concentration measurements, fostering the widespread adoption of TDM as a routine practice in psychiatric care. In conclusion, the integration of TDM in psychiatry can improve treatment outcomes by individualizing medication regimens within the so-called precision medicine.