A technology stack is crucial in software development as it comprises the combination of programming languages, frameworks, libraries, and tools necessary to build and run applications. It defines how different components interact and work together, ultimately affecting the system's performance and scalability. A well-defined technology stack helps developers streamline processes, reduce costs through efficiencies, and ensures that maintenance and updates can be carried out effectively. It also aids in hiring, as specific skills may be required based on the chosen stack.