Nanobodies, the smallest functional antibody fragment derived from camelid heavy-chain-only antibodies, have emerged as powerful tools for diverse biomedical applications. In this comprehensive review, we discuss the structural characteristics, functional properties, and computational approaches driving the design and optimisation of synthetic nanobodies. We explore their unique antigen-binding domains, highlighting the critical role of complementarity-determining regions in target recognition and specificity. This review further underscores the advantages of nanobodies over conventional antibodies from a biosynthesis perspective, including their small size, stability, and solubility, which make them ideal candidates for economical antigen capture in diagnostics, therapeutics, and biosensing. We discuss the recent advancements in computational methods for nanobody modelling, epitope prediction, and affinity maturation, shedding light on their intricate antigen-binding mechanisms and conformational dynamics. Finally, we examine a direct example of how computational design strategies were implemented for improving a nanobody-based immunosensor, known as a Quenchbody. Through combining experimental findings and computational insights, this review elucidates the transformative impact of nanobodies in biotechnology and biomedical research, offering a roadmap for future advancements and applications in healthcare and diagnostics.