Engineered functional neural interfaces (fNIs) serve as essential abiotic–biotic transducers between an engineered system and the nervous system. They convert external physical stimuli to cellular signals in stimulation mode or read out biological processes in recording mode. Information can be exchanged using electricity, light, magnetic fields, mechanical forces, heat, or chemical signals. fNIs have found applications for studying processes in neural circuits from cell cultures to organs to whole organisms. fNI-facilitated signal transduction schemes, coupled with easily manipulable and observable external physical signals, have attracted considerable attention in recent years. This enticing field is rapidly evolving toward miniaturization and biomimicry to achieve long-term interface stability with great signal transduction efficiency. Not only has a new generation of neuroelectrodes been invented, but the use of advanced fNIs that explore other physical modalities of neuromodulation and recording has begun to increase. This review covers these exciting developments and applications of fNIs that rely on nanoelectrodes, nanotransducers, or bionanotransducers to establish an interface with the nervous system. These nano fNIs are promising in offering a high spatial resolution, high target specificity, and high communication bandwidth by allowing for a high density and count of signal channels with minimum material volume and area to dramatically improve the chronic integration of the fNI to the target neural tissue. Such demanding advances in nano fNIs will greatly facilitate new opportunities not only for studying basic neuroscience but also for diagnosing and treating various neurological diseases.