Leflunomide (LLM) is subjected to forced degradation under conditions of hydrolysis, oxidation, dry heat, and photolysis as recommended by International Conference on Harmonization guideline Q1A(R2). In total, four degradation products (I–IV) were formed under different conditions. Products I, II and IV were formed in alkaline hydrolytic, acidic hydrolytic and alkaline photolytic conditions. LLM and all degradation products were optimally resolved by gradient elution over a C18 column. The major degradation product (IV) formed in hydrolytic alkaline conditions was isolated through column chromatography. Based on its 1H NMR, IR and mass spectral data, it was characterized as a British Pharmacopoeial impurity B. The HPLC method was found to be linear, accurate, precise, sensitive, specific, rugged and robust for quantification of LLM as well as product IV. Finally, the method was applied to stability testing of the commercially available LLM tablets.