Hydrophobic (poorly soluble) nutrients such as fat-soluble vitamins (A, D, E, and K), natural food colorants (carotenoids), phenolic compounds (e.g., curcumin), essential oils (EOs), and various flavor and aroma compounds are essential for human health but suffer from low aqueous solubility, resulting in poor gastrointestinal (GI) absorption and lower bioavailability. These limitations pose significant challenges for the effective utilization of these compounds in pharmaceutical and functional food applications. Nanotechnology has emerged as a promising strategy to overcome these barriers by enhancing the solubility, stability, and bioavailability of hydrophobic nutrients. Improving the bioavailability of hydrophobic nutrients through nanotechnology offers a transformative approach to enhancing the nutritional and therapeutic potential of functional food systems and nutraceuticals. Various nanocarrier systems, such as inclusion complexes (cyclodextrins (CDs), amylose, and yeast cells), lipid-based delivery systems (nanoemulsions, nanoliposomes, solid lipid nanoparticles (SLNs), and nanostructured lipid carriers (NLCs)), and biopolymer-based systems (molecular complexes, nanofibers, nanosponges, and nanogels), have demonstrated significant improvements in water dispersibility, antioxidant potential, and health-promoting properties. Furthermore, these nanocarriers improve bioaccessibility and bioavailability, protect against environmental stressors (e.g., light, oxygen, heat, humidity), and facilitate cellular uptake. Moreover, they have been engineered to release their payload at targeted sites within the gastrointestinal tract (GIT), thereby maximizing therapeutic efficacy. Despite these advantages, potential toxicity and immunological responses associated with the ingestion of nanocarriers remain critical concerns. Therefore, comprehensive in vitro, in vivo, and clinical evaluations are essential to establish the safety of nanoencapsulated hydrophobic nutrients.