Sustainable biopolymers are promising raw resources for the development of novel biomaterials with vast potential in various application fields. Nonetheless, the processing and derivatization of biomaterials is still a challenge due to the low solubility, especially of cellulose, in common solvents. Since the discovery that most biopolymers display significant solubility in ionic liquids (ILs), this method opened new routes for processing and derivatization of such compounds, thus allowing the access to novel materials with new structures and properties. IL processing has been shown to allow (i) accessing novel cellulose materials with controlled texture, crystallinity and morphology; (ii) derivatization of cellulose via chemical modification, and finally (iii) formation of cellulose based ionogels, blends and composites. This review discusses recent progress in IL related techniques that have recently been developed to synthesize new cellulose derivatives and to access cellulose-based functional materials such as polymer electrolytes, polymer composites, and electrospun fibers. These examples highlight the high potential of these novel cellulose derived materials for the design of cellulose based electrochemical devices, wound care materials, drug delivery systems, tissue engineering biomaterials, and other applications, thus representing a step forward towards sustainable and bio sourced functional materials.