Over the past few decades, the evaluation of a number of science disciplines and technologies have revolutionized food and dairy processing sector. Most notable among these are biotechnology, information technology etc. Recently “Nanotechnology”, an essentially modern scientific field that is constantly evolving as a broad area of research, with respect to dairy and food processing, preservation, packaging and development of functional foods. Food and dairy manufacturers, agricultural producers, and consumers could gain a more competitive position through nanotechnology. Furthermore, the delivery of bioactive compounds for nutritional as well as development of functional food are possible through this technology. Nanotechnology will replace many fields with tremendous application potential in the area of dairy and food sectors. Several critical challenges, including discovering of beneficial compounds, establishing optimal intake levels, developing adequate food delivering matrix and product formulation including the safety of the products need to be addressed. And also the potential negative effects of nanotechnology- based delivery systems on human health need to be considered.