The habenula is an epithalamic structure located at the center of the dorsal diencephalic conduction system, a pathway involved in linking forebrain to midbrain regions. Composed of a medial and lateral subdivisions, the habenula receives inputs from the limbic system and basal ganglia mainly through the stria medullaris (SM), and projects to midbrain regions through the fasciculus retroflexus (FR). An increasing number of studies have implicated this structure in psychiatric disorders associated with dysregulated reward circuitry function, notably mood disorders, schizophrenia, and substance use disorder. However, despite significant progress in research, the mechanisms underlying the relationship between the habenula and the pathophysiology of psychiatric disorders are far from being fully understood, and still need further investigation. This review provides a closer look at key findings from animal and human studies illustrating the role of the habenula in mood disorders, schizophrenia, and substance use disorder, and discusses the clinical potential of using this structure as a therapeutic target.