Sensors play a crucial role in factory automation in making the system intellectual. Different types of sensors are available as per the suitability and applications; some of them are produced in mass and available in the market at affordable costs. The standard sensor types available are position sensors, pressure sensors, flow sensors, temperature sensors, and force sensors. They are used in many sectors, such as motorsport, medical, industry, aerospace, agriculture, and daily life. The objective of Industry 4.0 is to increase efficiency through automation. Sensors are vital components of Industry 4.0, allowing several transitions such as changes in positions, length, height, external and dislocations in industrial production facilities to be detected, measured, analysed, and processed. Smart factories will also enhance sustainability by tracking real-time output, and automated control systems will minimise potential factory maintenance costs. It can also be seen that digitalisation can improve production mobility, which gives advanced manufacturing firms a competitive advantage. This paper discusses sensors and their various types, along with significant capabilities for manufacturing. The step-by-step working Blocks and Quality Services of Sensors during implementation in Industry 4.0 are elaborated diagrammatically. Finally, we identified thirteen significant applications of sensors for Industry 4.0. Industry 4.0 provides an excellent opportunity for the development of the sensor market across the globe. In Industry 4.0, sensors will enjoy higher acceptance rates and benefit from a fully enabled connecting and data exchange and logistics integration. In the coming years, sensor installations may grow in process management, automated production lines, and digital supply chains.