Diethyl isonitrosomalonate is primarily used in organic synthesis as a versatile intermediate. It plays a key role in the preparation of heterocyclic compounds, which are essential in the development of pharmaceuticals and agrochemicals. The compound is particularly valuable in the synthesis of pyrazole derivatives, which have applications in medicinal chemistry for creating drugs with anti-inflammatory, analgesic, and antimicrobial properties. Additionally, it is employed in the production of dyes and pigments due to its ability to form complex structures. Its reactivity with various nucleophiles makes it a useful reagent in constructing carbon-nitrogen bonds, facilitating the creation of diverse organic molecules.