Lignin, a renewable and abundant biopolyphenol, promises to revolutionize biomedical applications, particularly in the field of nanomedicine. Its inherent adaptability, functionalization capabilities, and nanoparticle production potential make it an attractive candidate for tackling crucial healthcare challenges. Ongoing research continues to reveal lignin’s vast potential in nanomedicine, offering opportunities to develop safer, more effective, and environmentally sustainable therapeutic solutions. Lignin is used in a variety of biomedical applications, including drug delivery systems, scaffolds for tissue engineering, wound healing dressings, and diagnostic imaging agents, among others. However, realizing lignin’s full potential is impeded by several challenges and obstacles that need to be overcome. These include biocompatibility with biological systems, scalability of production processes, stability of lignin-based materials, controlled release kinetics of therapeutic agents, regulatory hurdles, and cost-effectiveness. Overcoming these challenges requires interdisciplinary collaboration and innovative approaches to optimize lignin-based formulations for biomedical use. This work provides an up-to-date survey of the role of lignin in biomedical applications, highlights the challenges that need to be addressed, and outlines the promising prospects for lignin-based innovations in healthcare.