Cancer immunotherapy, which boosts the immune system to recognize and attack malignant cells, has revolutionized traditional cancer treatment paradigms. Approaches such as chimeric antigen receptor T cell (CAR-T) therapy and immune checkpoint inhibitors (ICIs) have demonstrated promising therapeutic outcomes, leading to the approval of numerous immuno-oncology agents by the US Food and Drug Administration (FDA) over the past few decades. Immuno-oncology agents, mainly based on conventional full-length antibodies or their derivatives, are widely used in cancer immunotherapy. However, their large size, unwanted immunogenicity, poor solubility, complex molecular architectures, and limited tumor penetration pose significant challenges that must be addressed. Nanobodies, which are single-domain antibody fragments originating from the variable regions of camelid heavy-chain immunoglobulins, represent the smallest known antigen-binding fragments. In addition to their small size (~ 15 kDa), nanobodies possess a range of advantageous properties, including high stability, strong specificity and affinity for target antigens, low immunogenicity, and cost-effective production. Nonetheless, their short serum half-life and lack of Fc-mediated functions may limit efficacy, which can be addressed by Fc fusion, albumin binding, or multivalent construct design. These properties enable nanobodies to support multifunctional constructs, such as bispecific CARs, nanobody-secreting CARs, dual ICI-containing molecules, and trispecific immune cell-engaging antibodies. In recent years, a growing number of nanobody-based immuno-oncology agents have progressed into preclinical and clinical trials, with several products approved by the US FDA and China's National Medical Products Administration for cancer therapy. In this review, we explore the unique properties of nanobodies and provide a comprehensive summary of recent preclinical and clinical advancements in nanobody-based immuno-oncology agents, with a focus on their applications in CAR-T cells, ICIs, and immune cell-engaging antibodies. Through their unique capacity to integrate innovative molecular engineering with translational clinical development, nanobody-based therapeutics are poised to revolutionize current paradigms in cancer immunotherapy.