Advances in metagenomics analysis with the advent of next-generation sequencing have extended our knowledge of microbial communities as compared to conventional techniques providing advanced approach to identify novel and uncultivable microorganisms based on their genetic information derived from a particular environment. Shotgun metagenomics involves investigating the DNA of the entire community without the requirement of PCR amplification. It provides access to study all genes present in the sample. On the other hand, amplicon sequencing targets taxonomically important marker genes, the analysis of which is restricted to previously known DNA sequences. While sequence-based metagenomics is used to analyze DNA sequences directly from the environment without the requirement of library construction and with limited identification of novel genes and products that can be complemented by functional genomics, function-based metagenomics requires fragmentation and cloning of extracted metagenome DNA in a suitable host with subsequent functional screening and sequencing clone for detection of a novel gene. Although advances were made in metagenomics, different challenges arise. This review provides insight into advances in the metagenomic approaches combined with next-generation sequencing, their recent applications highlighting the emerging ones, such as in astrobiology, forensic sciences, and SARS-CoV-2 infection diagnosis, and the challenges associated. This review further discusses the different types of metagenomics and outlines advancements in bioinformatics tools and their significance in the analysis of metagenomic datasets.