Purpose: The purpose of this paper is to offer a systematic review of the literature that explores under‐employment among recent graduates. Literature from a range of disciplines is reviewed in an attempt to further a theoretical understanding. In doing this, the secondary aim is to identify avenues for future research. Design/methodology/approach: The paper adopts a systematic literature review methodology to answer the question “What is graduate underemployment?” Findings: The review highlights significant issues around the conceptualisation and measurement of graduate under‐employment. It argues that individual volition and meaning making are important issues that to date remain under‐researched in relation to graduate under‐employment. The paper argues that the most appropriate basis for developing a theoretical understanding of graduate under‐employment is to draw upon relevant theoretical frameworks from career studies – specifically those on the objective‐subjective duality of career, career indecision, and career success. This approach provides a greater focus on the dynamics of the individual's experiences. Practical implications: This review has implications for a range of stakeholders including students, graduates, teachers and careers advisers, parents, universities, employers, HR professionals and policy makers. Originality/value: In the context of policy debates surrounding the purpose and value of higher education, this review brings together the highly fragmented perspectives on a phenomenon that encapsulates many of the issues being debated.