1,3‐diazetidin‐2‐ones, overlooked members of the aza‐β‐lactam family, are structurally distinct four‐membered nitrogen‐containing heterocycles with strong potential in medicinal chemistry, particularly as β‐lactamase inhibitors and antibiotic analogues. This review provides a comprehensive overview of their synthesis, structural diversity, and biological significance. The most established synthetic method is the [2 + 2] cycloaddition between CN nucleophiles and isocyanates, though this approach is highly substrate dependent and frequently leads to side products or cycloreversion. Alternative strategies—including photochemical and organometallic methodologies—have been explored but remain limited in scope. As a result, access to 1,3‐diazetidin‐2‐ones is significantly constrained, impeding wider investigation and application. In silico studies suggest favorable stability and reactivity profiles and indicate these compounds could circumvent β‐lactam resistance through hydrolysis‐resistant enzyme intermediates. Several derivatives have demonstrated promising antibacterial, antifungal, antioxidant, and anticancer activities. Nevertheless, further synthetic innovation is essential to fully realize the therapeutic potential of this underexplored class of heterocycles.