Lignin-derived carbon nanodots (LCNs) are nanometer-scale carbon spheres fabricated from naturally abundant lignin. Owing to rich and highly heritable graphene like π–π conjugated structure of lignin, to fabricate LCNs from it not only endows LCNs with on-demand tunable size and optical features, but also further broadens the green and chemical engineering of carbon nanodots. Recently, they have become increasingly popular in sensing, bioimaging, catalysis, anti-counterfeiting, energy storage/conversion, and others. Despite the enormous research efforts put into the ongoing development of lignin value-added utilization, few commercial LCNs are available. To have a deeper understanding of this issue, critical impacts on the preparation, properties, and applications of state-of-the-art LCNs are carefully reviewed and discussed. A concise analysis of their unique advantages, limitations for specific applications, and current challenges and outlook is conducted. We hope that this review will stimulate further advances in the functional material-oriented production of lignin.