Health issues are an emerging concern to the world population, and therefore the food industry is searching for novel food products containing health-promoting bioactive compounds, with little or no synthetic ingredients. However, there are some challenges in the development of functional foods, particularly in which the direct use of some bioactives is involved. They can show problems of instability, react with other food matrix ingredients or present strong odour and/or flavours. In this context, microencapsulation emerges as a potential approach to overcome these problems and, additionally, to provide controlled or targeted delivery or release. This work intends to contribute to the field of functional food development by performing a comprehensive review on the microencapsulation methods and materials, the bioactives used (extracts and isolated compounds) and the final application development. Although several studies dealing with microencapsulation of bioactives exist, they are mainly focused on the process development and the majority lack proof of concept for final applications. These factors, together with the lack of regulation, in Europe and in the United States, delay the development of new functional foods and, consequently, their market entry. In conclusion, the potential of microencapsulation to protect bioactive compounds ensuring their bioavailability is shown, but further studies are required, considering both its applicability and incentives by regulatory agencies.