The growth of Artificial Intelligence (AI) has substantially transformed the legal information landscape by reshaping the manner in which legal professionals, researchers, courts, and law libraries locate, organise, verify, and interpret legal materials. AI-enabled tools are increasingly used for legal research, document review, information retrieval, contract analysis, citation assistance, and data-driven legal analysis. While these technologies improve speed, accessibility, and efficiency, they also raise serious concerns regarding reliability, transparency, accountability, data privacy, professional ethics, and the authenticity of legal authorities. This paper adopts a doctrinal and analytical approach to examine the interface between Artificial Intelligence, legal institutions, and law libraries, with particular emphasis on the legal and ethical challenges arising from AI-assisted research and information-management systems. It analyses the changing role of law libraries as digital knowledge centres responsible for source verification, AI literacy, database curation, and ethical guidance. The paper further surveys Indian and international judicial responses to AI misuse, including decisions concerning AI-generated false citations, non-existent precedents, and the limits of AI authorship and inventorship. The discussion includes Indian judicial developments on hallucinated case law, as well as international decisions such as Thaler v. Vidal, Thaler v. Perlmutter, and Mata v. Avianca, which illustrate judicial insistence on human responsibility, verification, and professional accountability. These authorities remain directly relevant to the manuscript’s theme, as courts have treated unverified AI-generated legal material as a serious threat to adjudicatory integrity. The study finds that AI should function as an assistive tool rather than a substitute for legal judgment. It recommends human oversight, institutional AI-use guidelines, privacy safeguards, ethical training, and stronger verification practices within law libraries and legal institutions.