Abstract: First‐principles calculations, within the framework of density functional theory, are used to investigate the structural, electronic, optical, and thermoelectric properties of monolayer PbTe. The effect of layer thickness, electric field, strain, and vacancy defects on the electronic and magnetic properties is systematically studied. The results show that the bandgap decreases as the layer thickness increases from monolayer to bulk. With application of an electric field on bilayer PbTe, the bandgap decreases from 70 meV (0.2 V Å⁻¹) to 50 meV (1 V Å⁻¹) when including spin–orbit coupling (SOC). Application of uniaxial strain induces a direct‐to‐indirect bandgap transition for strain greater than +6%. In addition, the bandgap decreases under compressive biaxial strain (with SOC). The effect of vacancy defects on the electronic properties of PbTe is also investigated. Such vacancy defects turn PbTe into a ferromagnetic metal (single vacancy Pb) with a magnetic moment of 1.3 μB, and into an indirect semiconductor with bandgap of 1.2 eV (single Te vacancy) and 1.5 eV (double Pb + Te vacancy). In addition, with change of the Te vacancy concentration, a bandgap of 0.38 eV (5.55%), 0.43 eV (8.33%), and 0.46 eV (11.11%) is predicted.