Monoclonal antibodies (mAbs) have exhibited substantial potential as targeted therapeutics in cancer treatment due to their precise antigen-binding specificity. Despite their success in tumor-targeted therapies, their effectiveness is hindered by their large size and limited tissue permeability. Camelid-derived single-domain antibodies, also known as nanobodies, represent the smallest naturally occurring antibody fragments. Nanobodies offer distinct advantages over traditional mAbs, including their smaller size, high stability, lower manufacturing costs, and deeper tissue penetration capabilities. They have demonstrated significant roles as both diagnostic and therapeutic tools in cancer research and are also considered as the next generation of antibody drugs. In this review, our objective is to provide readers with insights into the development and various applications of nanobodies in the field of cancer treatment, along with an exploration of the challenges and strategies for their prospective clinical trials.