Nanotechnology is an emerging field covering a range of scientific and technological categories, moving forward in the textile industry. For instance, the ability to manipulate materials at nanoscale one billionth of a meter has led to the fabrication of textiles with desirable features like stain resistance, wrinkle-free properties, static-eliminating properties, and electrical conductivity while maintaining comfort and flexibility. This article explores the impact of nanotechnology on textiles, especially sustainable innovations. Nanomaterials can also be integrated into fabrics to develop multifunctional fabrics, such as antimicrobial, UV resistant, flame-retardant, and electrically conductive, leading to more durable and sustainable products. In addition, smart nanomaterial-based devices enable textiles to react to external factors such as a change in electrical signal, color or physiological state, contributing to the development of connected clothes with potential applications across different sectors such as fashion, healthcare, defense, and sports. The review notes the growing demand for high-performance sustainable textiles and gives insights on the approaches to integrate nanomaterials affordably and sustainably. It also discusses the potential health and environmental risks associated with nanotextiles, including nanotoxicity and their ecological consequences as well as the importance of conducting life cycle assessments (LCAs) of new nanotechnology and developing green nanotechnology. The current problems in developing green and biocompatible nanomaterials along other potential applications of smart textiles in energy harvesting, environmental monitoring, and sustainability are also highlighted. In a timely context, this chapter discusses current trends and challenges focusing on functionalizing textiles with nanomaterials to be in line with societal expectations of safety, cost-effectiveness, and sustainability alongside addressing potential health and environmental issues. The future of smart textiles utilizing nanomaterials for energy conversion and environmental monitoring is also discussed alongside effective waste disposal practices, emphasizing green nanotechnology’s ability to avoid harmful effects. Finally, it highlights the challenges of integrating such green nanomaterials in these innovations and the need for further research toward greener environment emphasizing the importance of advancing textiles safely with limited adverse effects.