The ambient humidity varies with seasons and geographical altitude across the regions. A change in relative humidity during processing, storage, and transportation can cause instability to the active pharmaceutical ingredient (API) solid form, which may sometimes lead to the formation of hydrates, decomposition, and dissociation (or disproportionation) of the drug product. A thorough understanding of the interaction of crystalline solid with atmospheric water is necessary to understand this phenomenon and to develop a potential solution to this problem. In this review, we discuss various aspects of this phenomenon along with some examples from the literature wherein the physical stability enhancement of an API is addressed through the multicomponent solid form (salts, cocrystals, and eutectics) development. The review also presents an overview of computational approaches employed to predict the hydration behavior of an API, their susceptibility to form hydrates, and studies on the crystal structure prediction of hydrates. Additionally, a few representative studies highlighting the moisture-induced phase transformations to polymorphs, hydrates, and cocrystal formation and their dissociation are discussed.