Previous research results on the mechanism of expansive soil stabilized by lime are summarized. It is clear that cation exchange is the first reaction when lime is added into expansive soil, followed by flocculation and agglomeration. These reactions change the soil’s properties quickly. Pozzolanic reaction of lime and soil is a long-term process, which helps increase the strength of expansive clay. Carbonation and crystallization also contributes to the strength increase of expansive soil. Diffusion and cementation are the causes of interior changes in the soil. Microstructure and mineralogy changes are the internal causes of stabilization of expansive soils. Moreover, analysis on the quantitative cation exchange, quantitative microstructure change, and soil suction change of expansive soil during lime treatment would be new research focus. These investigations will further reveal the fundamental mechanism of expansive soil stabilized by lime. The review also indicates that the possible environmental pollution caused by lime stabilization can be ignored.