Nanofluid is a new class of heat transfer fluid that is introduced to enhance the heat transfer performance in various heat exchanging systems. Prior to invention of nanofluid, water is the most common fluid used to extract heat generated from the systems. The application of water has reached thermal bottleneck since it can only enhance the heat transfer performance up to a certain extent. The suspension of nanoparticles with enhanced thermal conductivity provides augmentation in heat transfer performance. Since then, nanofluids have received great interest from scientists and researchers due to significant higher thermal conductivity. Due to enhanced thermophysical properties, nanofluids can be incorporated into high heat transfer device such as solar thermal conversion system, heat exchanger, and electronic equipment. Understanding the factors that influence the heat transfer performance is extremely important for appropriate selection and implementation of nanofluids. The influence of nanoparticles material, nanoparticles size, nanoparticles concentration, nanoparticles shape and surfactant are reviewed systematically to provide a comprehensive understanding of nanofluids. The review aims to extensively discuss the application of nanofluids in engineering application such as microchannel heat sink (MCHS). Finally, the review aims to update the readers about the current progress of nanofluids along with challenges of nanofluids in engineering field.