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 are being overcome by incorporating the bioactive compounds into nanoparticles, which are then introducing into the packaging materials. The presence of these nanoencapsulated active compounds in biopolymer-based coatings or films can greatly improve their functional performance. This article reviews the different kinds of nanocarriers available for loading active compounds into these types of materials, and then discusses their impact on the optical, mechanical, thermal, barrier, antioxidant, and antimicrobial properties of the packaging materials. Furthermore, this article highlights the different kinds of bioactive compounds that can be incorporated into biopolymer-based packaging.