L-Arabinose isomerase (AI), a key enzyme in the microbial pentose phosphate pathway, has been regarded as an important biological catalyst in rare sugar production. This enzyme could isomerize L-arabinose into L-ribulose, as well as D-galactose into D-tagatose. Both the two monosaccharides show excellent commercial values in food and pharmaceutical industries. With the identification of novel AI family members, some of them have exhibited remarkable potential in industrial applications. The biological production processes for D-tagatose and L-ribose (or L-ribulose) using AI have been developed and improved in recent years. Meanwhile, protein engineering techniques involving rational design has effectively enhanced the catalytic properties of various AIs. Moreover, the crystal structure of AI has been disclosed, which sheds light on the understanding of AI structure and catalytic mechanism at molecular levels. This article reports recent developments in (i) novel AI screening, (ii) AI-mediated rare sugar production processes, (iii) molecular modification of AI, and (iv) structural biology study of AI. Based on previous reports, an analysis of the future development has also been initiated.