Immunotherapy shows a lot of promise for addressing the problems with traditional cancer treatments. Researchers and clinicians are working to create innovative immunological techniques for cancer detection and treatment that are more selective and have lower toxicity. An emerging field in cancer therapy, immunomodulation offers patients an alternate approach to treating cancer. These therapies use the host’s natural defensive systems to identify and remove malignant cells in a targeted manner. Cancer treatment is now undergoing somewhat of a revolution due to recent developments in nanotechnology. Diverse nanomaterials (NMs) have been employed to overcome the limits of conventional anti-cancer treatments such as cytotoxic, surgery, radiation, and chemotherapy. Aside from that, NMs could interact with live cells and influence immune responses. In contrast, unexpected adverse effects such as necrosis, hypersensitivity, and inflammation might result from the immune system (IS)’s interaction with NMs. Therefore, to ensure the efficacy of immunomodulatory nanomaterials, it is essential to have a comprehensive understanding of the intricate interplay that exists between the IS and NMs. This review intends to present an overview of the current achievements, challenges, and improvements in using immunomodulatory nanomaterials (iNMs) for cancer therapy, with an emphasis on elucidating the mechanisms involved in the interaction between NMs and the immune system of the host.