Beneficial properties achieved by nanostructuring effects in materials have generated tremendous interests in applications in surface engineering, especially in thermal barrier coatings (TBC). Limitations in conventional TBC processing for gas turbines and aero-propulsion systems have been exposed during past decades when rapid progress was made in nano-structuring coating research and developments. The present work is a comprehensive review of the current state of progress in nanostructured TBC (Ntbc) in reference to its microstructure, damage progression, failure mechanisms and a wide range of properties. The review aims to address the comparative performance analysis between the nanostructured and conventional (microstructured) 6–8 wt.% yttrium stabilized zirconia (YSZ) TBC systems. Oxidation resistance and sintering behavior in two TBCs are considered as the central focus of discussion. A few schematics are used to represent major microstructural features and failure progression. A performance analysis is performed for standard 2-layer, as well as functionally graded multilayer, TBC systems. A comparison of TBC characteristics processed by plasma spray and vapor deposition techniques is also made as reference. Compared to the sea of R&D efforts made for conventional TBC (Ctbc), limited experimental studies on Ntbc offers conflicting data, and prediction modeling and computational research are scarce.