Nanomaterials are engineered materials with at least one dimension in the range of 1-100 nm. Nanofluids-nanoscale colloidal suspensions containing various nanomaterials-have distinctive properties and offer unprecedented potential for various sectors such as the energy, cosmetic, aerospace and biomedical industries. Due to their unique physico-chemical properties, nanoparticles are considered as very good candidates for smart drilling fluid formulation, i.e., fluids with tailor-made rheological and filtration properties. However, due to the great risk of adapting new technologies, their application in oil and gas industry is not, to date, fully implemented. Over the last few years, several researchers have examined the use of various nanoparticles, from commercial to custom made particles, to formulate drilling fluids with enhanced properties that can withstand extreme downhole environments, particularly at high pressure and high temperature (HP/HT) conditions. This article summarizes the recent progress made on the use of nanoparticles as additives in drilling fluids in order to give such fluids optimal rheological and filtration characteristics, increase shale stability and achieve wellbore strengthening. Type, size and shape of nanoparticles, volumetric concentration, addition of different surfactants and application of an external magnetic field are factors that are critically evaluated and are discussed in this article. The results obtained from various studies show that nanoparticles have a great potential to be used as drilling fluid additives in order to overcome stern drilling problems. However, there are still challenges that should be addressed in order to take full advantage of the capabilities of such particles. Finally the paper identifies and discusses opportunities for future research.