Isomaltulose is a natural isomer of sucrose. It is widely used as a functional sweetener with promising properties, including slower digestion, lower glycemic index, prolonged energy release, lower insulin reaction, and less cariogenicity. It has been approved as a safe sucrose substitute by the Food and Drug Administration of the US; Ministry of Health, Labor and Welfare of Japan; and the Commission of the European Communities. This article presents a review of recent studies on the properties, physiological effects, and food application of isomaltulose. In addition, the biochemical properties of sucrose isomerases producing isomaltulose are compared; the heterologous expression, fermentation optimization, structural determination, and catalysis mechanism of sucrose isomerase are reviewed; and the biotechnological production of isomaltulose from sucrose is summarized.