Recently, there is an increased interest in innovative bioconversions of lactose to produce value-added lactose derivatives and accomplish regenerative economy since, limited use of lactose for its low solubility and sweetness. The several hydroxyl groups on lactose present potential sites for the chemical modification. Lactose derivatives are obtained from lactose by chemical, enzymatic or microbial modifications. Various derivatives of lactose include lactulose, lactitol, lactobionic acid, lactosucrose and galcto-oligosaccharides have shown several functional and health promoting properties and thus making it a potential ingredient for food and pharmaceutical applications. This chapter mainly delves into lactose derivatives, their properties, method of preparation, food and pharmaceutical applications and health benefits.