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Nanocellulose materials (CNMs), encompassing cellulose nanocrystals (CNCs), cellulose nanofibrils (CNFs), and bacterial nanocellulose (BNC), have emerged as a versatile and sustainable class of bio-based nanomaterials with significant promise for applications in mechanical engineering. This review systematically examines the processing of nanocellulose via mechanical, chemical, and enzymatic routes, alongside surface modification strategies that enhance performance and address scalability challenges. A principal advantage of CNMs lies in their exceptional mechanical properties, including superior strength, stiffness, and toughness, which position them as high-performance, sustainable reinforcement agents for advanced composites. Beyond mechanical reinforcement, CNMs exhibit a suite of functional properties critical for engineering design, such as thermal stability, tunable conductivity, effective gas/moisture barrier performance, and improved tribological behavior. These characteristics enable their use in diverse high-value applications, including lightweight composites, protective coatings, energy storage devices, sensors, actuators, and intelligent material systems. Furthermore, the inherent renewability, biodegradability, and recyclability of nanocellulose align closely with the principles of a circular economy and green engineering. However, the successful integration of CNMs into mainstream manufacturing requires overcoming key challenges. These include the energy intensity of certain production processes, inherent moisture sensitivity, long-term stability under operational conditions, and compatibility with established industrial techniques. Life-cycle analyses reveal important environmental trade-offs that must be navigated. Overall, nanocellulose represents a renewable, multi-functional material platform whose unique combination of mechanical performance, functional versatility, and environmental benefits is poised to drive innovation in next-generation engineering materials.