There is great interest in developing biodegradable biopolymer-based packaging materials whose functional performance is enhanced by incorporating active compounds into them, such as light blockers, plasticizers, crosslinkers, diffusion blockers, antimicrobials, antioxidants, and sensors. However, many of these compounds are volatile, chemically unstable, water-insoluble, matrix incompatible, or have adverse effects on film properties, which makes them difficult to directly incorporate into the packaging materials. These challenges can often be overcome by encapsulating the active compounds within food-grade nanoparticles, which are then introduced into the packaging materials. The presence of these nanoencapsulated active compounds in biopolymer-based coatings or films can greatly improve their functional performance. For example, anthocyanins can be used as light-blockers to retard oxidation reactions, or they can be used as pH/gas/temperature sensors to produce smart indicators to monitor the freshness of packaged foods. Encapsulated botanical extracts (like essential oils) can be used to increase the shelf life of foods due to their antimicrobial and antioxidant activities. The resistance of packaging materials to external factors can be improved by incorporating plasticizers (glycerol, sorbitol), crosslinkers (glutaraldehyde, tannic acid), and fillers (nanoparticles or nanofibers). Nanoenabled delivery systems can also be designed to control the release of active ingredients (such as antimicrobials or antioxidants) into the packaged food over time, which may extend their efficacy. This article reviews the different kinds of nanocarriers available for loading active compounds into these types of packaging materials and then discusses their impact on the optical, mechanical, thermal, barrier, antioxidant, and antimicrobial properties of the packaging materials. Furthermore, it highlights the different kinds of bioactive compounds that can be incorporated into biopolymer-based packaging.