Plants can produce and release allelochemicals to interfere with the establishment and growth of conspecific and interspecific plants. Such allelopathy is an important mediator among plant species in natural and managed ecosystems. This review focuses on allelopathy and allelochemicals in grasslands and forests. Allelopathy drives plant invasion, exacerbates grassland degradation and contributes to natural forest regeneration. Furthermore, autotoxicity (intraspecific allelopathy) frequently occurs in pastures and tree plantations. Various specialized metabolites, including phenolics, terpenoids and nitrogen-containing compounds from herbaceous and woody species are responsible for allelopathy in grasslands and forests. Terpenoids with a diversity of metabolites are qualitative allelochemicals occurring in annual grasslands, while phenolics with a few specialized metabolites are quantitative allelochemicals occurring in perennial forests. Importantly, allelochemicals mediate below-ground ecological interactions and plant–soil feedback, subsequently affecting the biodiversity, productivity and sustainability of grasslands and forests. Interestingly, allelopathic plants can discriminate the identity of neighbors via signaling chemicals, adjusting the production of allelochemicals. Therefore, allelochemicals and signaling chemicals synergistically interact to regulate interspecific and intraspecific interactions in grasslands and forests. Allelopathy and allelochemicals in grasslands and forests have provided fascinating insights into plant–plant interactions and their consequences for biodiversity, productivity and sustainability, contributing to our understanding of terrestrial ecosystems and global changes.