This paper reviews the applications of Internet of Things (IoT) and digital twin technology in electrical power systems. It begins by discussing the generalized IoT value chain, followed by the terminology of smart grid, with clarifying the role of IoT‐systems and the digital twin structure within the Smart Grid. A comparison between different short‐range and long‐range transports is presented. The paper then discusses the use of IoT and digital twin technology for effective energy management with applications in smart homes, smart buildings, smart grids, smart industries (Industry 4.0), smart transportation and smart cities. Additionally, the paper explores the use of IoT and digital twin technology for condition monitoring and diagnosis (CMD) in electrical power systems. Three different cases are presented for CMD, that is, CMD of power transformers, CMD of electrical grids and CMD of substations. IoT and digital twin applications are also highlighted in power electronic systems. Finally, the paper discusses the challenges and opportunities of applying IoT and digital twin technology to electrical power systems and provides recommendations for future research.