Avoiding immune destruction is a hallmark of cancer. Over the past few years, significant advances have been made in understanding immune dysfunction and immunosuppression in multiple myeloma (MM), and various immunotherapeutic approaches have delivered improved clinical responses. However, it is still challenging to completely eliminate malignant plasma cells (PCs) and achieve complete cure. The interplay between the immune system and malignant PCs is implicated throughout all stages of plasma cell dyscrasias including asymptomatic states called monoclonal gammopathy of undetermined significance and smoldering myeloma. While the immune system effectively eliminates malignant PCs or at least induces functional dormancy at early stages, malignant PCs eventually evade immune elimination, leading to progression into active MM, in which dysfunctional effector lymphocytes, tumor-educated immunosuppressive cells, and soluble mediators coordinately act as a barrier for anti-myeloma immunity. An in depth understanding of this dynamic process, called cancer immunoediting, will provide important insights into the immunopathology of plasma cell dyscrasias and MM immunotherapy. Moreover, a growing body of evidence suggests that together with non-hematopoietic stromal cells, BM immune cells with unique functions support the survival of normal and malignant PCs in the BM niche, highlighting the diverse roles of immune cells beyond anti-myeloma immunity. Together, the immune system critically acts as a rheostat that fine-tunes the balance between dormancy and disease progression in plasma cell dyscrasias.