We present a review on the multifunctional use of ionic liquids with respect to lignin processing. In a biorefinery context, lignocellulosics could be used to provide sustainable sources of fuels such as bioethanol, and feedstock molecules for the chemical industry such as phenols and other aromatics. However, separation of lignin from cellulose and hemicellulose is a vital step. Ionic liquids can dissolve extensive quantities of biomass, and even be designed to be multifunctional solvents. We highlight the use of ionic liquids in selectively or non-selectively dissolving lignin, the depolymerization reactions that have been attempted on lignin in ionic liquids, and the effect ionic liquids have been observed to have on such processes. Finally, we present some of the challenges and issues that must be addressed before the informed and large-scale application of ionic liquids can be realized for lignin processing.