N-Hydroxyethylphthalimide is primarily used in the synthesis of pharmaceuticals and organic compounds. It serves as a key intermediate in the production of various drugs, particularly those targeting neurological and inflammatory conditions. Its structure allows it to participate in reactions that form complex molecules, making it valuable in medicinal chemistry. Additionally, it is employed in the development of polymers and coatings, where it contributes to enhancing material properties such as durability and flexibility. In research, it is utilized to study reaction mechanisms and develop new synthetic pathways. Its versatility makes it a significant compound in both industrial and academic settings.