Counterfeit products and data vulnerability present significant challenges in contemporary society. Hence, various methods and technologies are explored for anticounterfeiting encoding, with luminescent tracers, particularly luminescent carbon dots (CDs), emerging as a notable solution. CDs offer promising contributions to product security, environmental sustainability, and the circular economy. This critical review aims to highlight the luminescence responsiveness of CDs to physical and chemical stimuli, achieved through nanoengineering their chemical structure. The discussion will delve into the various tunable luminescence mechanisms and decay times of CDs, investigating preferential excitations such as up‐conversion, delayed fluorescence, fluorescence, room temperature phosphorescence, persistent luminescence, energy and charge transfer, as well as photo‐chemical interactions. These insights are crucial for advancing anticounterfeiting solutions. Following this exploration, a systematic review will focus on the research of luminescent CDs' smart encoding applications, encompassing anticounterfeiting, product tracing, quality certification, and information encryption. Finally, the review will address key challenges in implementing CDs‐based technology, providing specific insights into strategies aimed at maximizing their stability and efficacy in anticounterfeiting encoding applications.