The consumer segment radical shift in demand for foods with health-promoting benefits has sparked the need for cutting-edge processing techniques for the creation of functional foods. While the bioactive compounds responsible for health benefits are abundantly available in natural sources, it is backed by the limitations in achieving greater purity and recovery potential. This requires a holistic approach either by increasing the concentration of bioactives at the gene levels or by increasing the efficacy of production and downstream process. Rapidly evolving tools in the field of biotechnology can be harnessed for the extraction, isolation, optimization and development of functional foods. The broader areas include genetic engineering, metabolomics, fermentation and enzyme technology, all of which are aimed at improving the nutritional and therapeutic properties in the course of functional food product development. Enhancement in nutritional and functional characteristics during bio-fortification can result in varieties with a superior nutritional profile. Further the integration of novel techniques like metagenomics results in tapping of unknown, yet potential reservoirs of nutraceuticals for its commercial benefit and utilization. This may lead to the production of newer metabolites with greater benefits in reducing the risk of chronic diseases such as obesity, cardiovascular diseases, hypertension, atherosclerosis, diabetes, cancer, inflammation, etc. Integrating the concept of diet-nutrition-health can assist in solving problems of food and nutritional security challenges. The delivery of intended nutraceuticals helps in the development of designer-based functional foods and leads to the concept of targeted nutrition. This chapter covers the principles of biotechnology as they relate to the development of functional foods. It also provides an overview of some of the specific functional foods that have applications and offers suggestions for future research to help the approach gain wider commercial acceptance.