During the 1988–89 English football season, Luton Town F.C. competed in the Football League First Division, in which they finished 16th to secure an eighth successive season at this level. They were holders of the League Cup for this season and maintained their defence of the trophy to the final, where they were beaten by Nottingham Forest.
Despite being League Cup holders, Luton did not compete in the UEFA Cup this season due to the continuation of the ban on English clubs in European competitions arising from the Heysel disaster of 1985.
Luton were unable to build on their top-ten finishes of the two previous seasons and finished the season in 16th, just two points clear of relegation. Luton did manage to reach the League Cup final for the second season running, but were unable to defend the cup as they were beaten 3-1 by Nottingham Forest.
On a positive note, Luton managed to record the biggest home win of the season, when they thrashed Southampton 6-1 in January.