The textile industry is a sector suffering under severe environmental challenges, as it follows a resource- and energy-intensive, linear production model with high water and energy consumption, chemical pollution, and waste generation. This chapter illustrates the potential of nanotechnology in circumventing the above challenges for a transition to a circular and sustainable textile system. The addition of nanomaterials, including silver, titania, and zinc oxide, provides textiles with improved functionality, such as antimicrobial, UV-durable, and self-cleaning properties, thereby increasing the product life cycle and environmental footprint of textiles. Nanocatalysts also improve wastewater treatment by degrading persistent dyes, while nano-enabled sensors and RFID systems support supply chain traceability. Innovative developments, including self-healing fabrics and biopolymer-based nanoparticles, further align with circular economy goals. The usefulness and scalability of nanotech innovations are illustrated by case studies from businesses such as Schoeller Textiles and Gore-Tex. However, issues like exorbitant prices, unclear regulations, concerns about nanotoxicity, and inadequate recycling infrastructure continue to exist. With the objective to direct the responsible development of nanotechnology, the chapter highlights the significance of safe-by-design approaches, interdisciplinary collaboration, and policy frameworks. It also links the potential of nanotechnology to global sustainability initiatives, specifically SDGs 9, 12, and 13, which indicate for systemic change and continuous innovation to transform the textile industry.