API gateways are crucial in microservices architecture as they serve as intermediaries that manage traffic between clients and microservices. They handle various functions like authentication, load balancing, and rate limiting, which help to streamline operations. By providing a unified entry point, they simplify client interactions and enhance security. Additionally, API gateways can facilitate the monitoring and logging of requests, improving the observability of microservices. Overall, they play a vital role in maintaining the performance and scalability of distributed systems.