<p>Lime stabilization is a recognized, cost-effective technique for improving the mechanical properties of expansive and fine-grained soils, primarily through cation exchange, flocculation, and time-dependent pozzolanic reactions forming cementitious products like C–S–H and C–A–H. Furthermore, the lime content selected critically governs stabilization outcomes; mechanical strength exhibits a distinct dependency on dosage, typically increasing to an optimum before potentially declining with excess lime, while hydraulic conductivity is also substantially altered by lime percentage and curing duration due to consequent changes in soil fabric and pore structure. However, the long-term durability and performance of lime-treated soils are significantly challenged under realistic environmental conditions. Key concerns include degradation from cyclic wetting–drying which causes cracking and strength loss, carbonation which consumes beneficial compounds and can reverse stabilization effects, and freeze–thaw cycles that induce cracking and drastically reduce strength and modulus. Furthermore, the presence of sulfates leads to detrimental expansion via ettringite/thaumasite formation, while organic matter, particularly humic substances, inhibits necessary pozzolanic reactions. Standard laboratory procedures often fail to capture the complex interplay and severity of these factors as experienced in the field. Recent research highlights the necessity of multi-scale analyses to better understand these complex lime–soil–environment interactions. Promisingly, innovative strategies involving the combined use of lime with industrial byproducts (such as fly ash, slag, silica fume, or volcanic ash) or fiber reinforcement (including polypropylene, steel, or natural fibers) have demonstrated enhanced resistance to freeze–thaw damage and sulfate attack, while simultaneously promoting sustainability through waste valorization. Challenges persist in creating durability tests that truly reflect field conditions, building reliable long-term performance models, and validating new stabilization blends under extreme environmental stress. This review consolidates existing knowledge on lime interaction mechanisms, environmental impacts, and mitigation strategies, incorporating insights from geotechnical engineering, materials science, and environmental chemistry to guide the design of durable and sustainable lime-stabilized soils.</p>