Hand grenades are a vital part of any soldier's battlefield loadout, allowing him to deal with combat situations without exposing himself to enemy fire. There are three types of grenade available to the Xenonauts when the game commences, though no doubt researching captured extraterrestrial technology will yield several more.

The Fragmentation grenade is the traditional anti-personnel device, using a small explosive charge surrounded by a metal coil that fragments into a cloud of razor-sharp shrapnel on detonation. The raw explosive power of this grenade is limited and it will cause only minor damage to scenery, but any infantry caught in the blast radius will suffer considerable damage. The armour penetration of these fragments is only mediocre, but even soldiers wearing heavy armour are likely to suffer injury due to the sheer amount of flying metal, while unarmoured foes will simply be cut to ribbons. It is very useful for dealing with troops sheltering behind cover, as it can be lobbed over the top of the obstacle to attack the enemies from their unprotected rear.

The Nerve Gas grenade is a pressurised canister filled with a highly-toxic Sarin/Mustard Gas mix, coupled with a small incendiary compound that burns on contact with air to produce a thick aerosol of the lethal gases. This cloud of gas will rapidly expand over a short period of time after detonation and will persist for several minutes, causing intense chemical burns and blistering in the lungs and on the exposed skin of any living organism that enters it. It is extremely effective for clearing enclosed spaces, as with no escape route enemies will be forced to withdraw entirely or take significant damage.

The Stun grenade is a two-part weapon designed to incapacitate the victim. The primary effect is the explosive detonation of a sizeable magnesium oxide cap, producing a blinding flash and deafening explosion that disorientates the target. A CS gas aerosol is then ignited, which further disables the target over a number of minutes. This can either leave the target unconscious, or severely weakened and ready to be subdued with stun batons. However, while proven effective against human targets, the effects of the grenades against extraterrestrial anatomy are yet unknown.