Functional paper packaging has attracted a lot of attention lately because of its exceptional performance, adaptability, and promise to offer the packaging industry more sustainable alternatives. Paper-based packaging is characterized by its large surface area, adjustable porosity, and customizability, while functional paper-based packaging generally exhibits good mechanical strength and barrier properties. The production of many functional papers using nanotechnology is a rapidly advancing research topic for today’s researchers and the packaging industry due to both sustainability and advanced features. Functional paper packages produced with nanotechnology exhibit advanced features, including high mechanical efficiency, improved gas barrier properties, and protection against moisture and temperature, as well as providing very good antibacterial properties. Additionally, functional paper packaging produced with nanotechnology enables us to provide smart, intelligent, or active packaging features. Packaging produced from paper is degradable/biodegradable materials. However, such packaging materials have poor barrier and mechanical properties compared to their petroleum-based counterparts. This study critically evaluates the improvement of disadvantages, such as product protection and shelf life extension, of paper-based packaging materials by using nanomaterials, as well as the limitations of applying nanosized materials. Nanosized materials used in functional paper packaging are examined in detail in the study. The findings will guide various researchers and manufacturers in the development of packaging for nanotechnology.