Photoanisotropic materials, in particular azodyes and azopolymers, have attracted significant research interest in the last decades. This is due to their applications in polarization holography and 4G optics, enabling polarization-selective diffractive optical elements with unique properties, including circular polarization beam-splitters, polarization-selective bifocal lenses, and many others. Numerous methods have been applied to increase the photoinduced birefringence of these materials, and as a result, to obtain polarization holographic elements with a high diffraction efficiency. Recently, a new approach has emerged that has been extensively studied by many research groups, namely doping azobenzene-containing materials with nanoparticles with various compositions, sizes, and morphologies. The resulting nanocomposites have shown significant enhancement in their photoanisotropic response, including increased photoinduced birefringence, leading to a higher diffraction efficiency and a larger surface relief modulation in the case of polarization holographic recordings. This review aims to cover the most important achievements in this new but fast-growing field of research and to present an extensive comparative analysis of the result, reported by many research groups during the last two decades. Different hypotheses to explain the mechanism of photoanisotropy enhancement in these nanocomposites are also discussed. Finally, we present our vision for the future development of this scientific field and outline its potential applications in advanced photonics technologies.