As a result of the scarcity of land, civil engineering projects must increasingly be built on weaker ground, necessitating the creation of ground improvement methods like soil stabilization. Stabilization techniques including chemical stabilization, electrical stabilization, and geotextile and fabric stabilization have emerged in response to the ever-increasing need to enhance geotechnical qualities, due to the limits of traditional materials and the rapid growth of nanotechnology, nanomaterials are being introduced for soil stabilization. This study summarizes the possible advantages of nanotechnology for novel approaches to soil improvement and analyzes their nature and scope. The purpose of this literature review is to provide a concise overview of how nanotechnology is currently being used in geotechnical and construction engineering. Additionally, microstructural analysis of nanomaterials is performed to learn more about their pattern and shape, and this study provides a list of nanomaterial classifications based on origin and dimension and their properties. In this work, four nanomaterials—carbon nanotubes, colloidal silica, bentonite, and laponite—are principally discussed in terms of their reinforcement mechanisms. This study compiles information from the literature to illustrate the effect of nanoparticles on the engineering qualities and index properties of the improved soil. The results demonstrate significant improvements in soil strength, cohesion, and liquefaction resistance, showcasing the potential of nanomaterials for soil stabilization and reinforcement. The environmental benefits of nanomaterials, including their lower carbon footprint and reduced reliance on traditional stabilizers like cement, are discussed, making them suitable for sustainable geotechnical practices. This review also highlights the need for continued research into the long-term performance and cost-efficiency of nanomaterial applications in geotechnical projects. With advancements in nanotechnology, the integration of nanomaterials into large-scale construction projects is expected to transform soil improvement techniques and address pressing geotechnical challenges posed by urbanization and climate change.