Concerns on environmental waste problems caused by non-biodegradable petrochemical-based plastic packaging materials as well as the consumer's demand for high quality food products has caused an increasing interest in developing biodegradable packaging materials using annually renewable natural biopolymers such as polysaccharides and proteins. Inherent shortcomings of natural polymer-based packaging materials such as low mechanical properties and low water resistance can be recovered by applying a nanocomposite technology. Polymer nanocomposites, especially natural biopolymer-layered silicate nanocomposites, exhibit markedly improved packaging properties due to their nanometer size dispersion. These improvements include increased modulus and strength, decreased gas permeability, and increased water resistance. Additionally, biologically active ingredients can be added to impart the desired functional properties to the resulting packaging materials. Consequently, natural biopolymer-based nanocomposite packaging materials with bio-functional properties have a huge potential for application in the active food packaging industry. In this review, recent advances in the preparation of natural biopolymer-based films and their nanocomposites, and their potential use in packaging applications are addressed.