Functional foods play an important role in maintaining a healthy lifestyle and reducing the risk factors of various diseases. Most foods have a functional element which is responsible for improving the healthy state. All food substances such as fruits, vegetables, cereals, meat, fish, dairy contain functional ingredients. A wide range of naturally occurring substances from plant and animal sources having active components which play a role in physiological actions deserve attention for their optimal use in maintaining health. The market for functional food is keep on expanding, and the global market is projected to reach a value of at least 91 billion USD soon. Overwhelming evidence from preclinical (in vitro and in vivo) and clinical studies have shown that intake of functional foods could have an impact on the prevention of chronic diseases, especially cancer, cardiovascular diseases, gastrointestinal tract disorders and neurological diseases. Extensive research needs to be done to determine the potential health benefits for the proper application of these foods to improve health state and combat chronic disease progression. The aim of this review is to conduct a thorough literature survey, to understand the various classification of functional foods and their health benefits.