Inorganic layered compounds are an important part of organic− inorganic functional nanocomposites and offer plentiful opportunities and possibilities for synthesizing new-style multifunctional materials because they could be intercalated, exfoliated, and swollen. In recent years, as inorganic layered materials with photoluminescence, layered rare earth hydroxides (LRHs) have been extensively studied. Due to their rich functionalization ways, they have been applied or shown potential application value in many fields such as pollution detection, biomedicine, photoelectric energy storage, and so on. On account of the basic physical and chemical properties, the basic structures of LRHs may be regulated through exfoliation and intercalation, which provides more possibilities for synthesizing new multifunctional composite materials and broadening and updating their application fields. In this paper, LRHs are extracted from inorganic layered compounds, and the structure, synthesis, research progress, and application of LRHs are summarized in detail, which lays a great theoretical foundation for further exploration and optimization of the application as a composite functional material in industry, medicine, detection, optoelectronics, and other fields.