Lactose has long been used as a precursor for the manufacture of high-value derivatives with emerging applications in the food and pharmaceutical industries. This review focuses on the main characteristics, manufacturing methods, physiological effects and applications of lactobionic acid. Lactobionic acid is a product obtained from lactose oxidation, with high potential applications as a bioactive compound. Recent advances in tissue engineering and application of nanotechnology in medical fields have also underlined the increased importance of this organic acid as an important biofunctional agent.