Essential oils are volatile, complex products of plants as secondary metabolites and include terpenes and their oxygenated derivatives, such as alcohols, aldehydes, esters, ketones, phenols and oxides. In recent years, out of 3000 essential oils obtained from plant origin only 300 essential oils have gained extensive attention for applications in various fields. In this review, we discuss the major biological activities associated with EOs as antimicrobial, antispasmodic, antioxidant, antiviral, anti-inflammatory, anthelmintic, insecticidal, antiparasitic, and cytotoxic agents. Different routes for delivery of essential oil along with the problems associated with essential oils like high volatility, low stability, permeability, bioavailability, poor water solubility, susceptibility to oxidation, decomposition, photosensitization and skin irritation are also highlighted. Furthermore, strategies to solve the mentioned problems are suggested by different nanoencapsulating systems. These include polymer-based nanocarriers, lipid-based nanocarriers and molecular complexes. It is believed that nanoencapsulation of essential oils will improve their therapeutic activity and delivery.