Current treatments for locally advanced rectal cancer (LARC) include preoperative radiotherapy, chemotherapy and chemoradiotherapy followed by total mesorectal excision (TME), which can severely impact quality of life. Recently, anti-PD1 immunotherapy in microsatellite instability high (MSI-H) LARC has shown 100% clinical complete responses, allowing patients to avoid surgery with minimal toxicity. This review assesses the safety, toxicity, pathological impact, and long-term benefits of incorporating immunotherapy into the neoadjuvant treatment of microsatellite stable (MSS) and MSI-H LARC. This systematic review, conducted following PRISMA guidelines, investigates neoadjuvant immunotherapy in LARC. Data on study characteristics, treatment protocols, and outcomes were extracted. Quality assessment was conducted by using the Methodological Index for nonrandomized studies (MINORS) and the RoB2 tool. Patients were categorized into MSI-H, MSS, and unknown microsatellite status cohorts. We found twelve published studies including 547 patients. In the MSS cohort, postneoadjuvant surgery rates ranged from 57.6% to 100%, with a watch-and-wait approach adopted in up to 27.1% of cases. For MSI-H patients, surgery and watch-and-wait rates varied widely (0%-100%), reflecting heterogeneity in management. R0 resection rates were high across cohorts (70%-100% MSS, 80%-100% MSI-H). Pathological complete response (pCR) rates were 25% to 50% in MSS and 50% to 60% in MSI-H cohorts. Grade 3-4 adverse events ranged from 3.9% to 45.2% (MSS), 0% to 60% (MSI-H), with immune-related events generally below 10%. The role of immunotherapy in MSS rectal cancer remains unclear; phase III trials and translational research are needed urgently for guidance.