Electrorheological fluids indisputably constitute an inimitable category of stimuli-responsive materials having capability of changing their rheological characteristics under applied electric field effects. An electrorheological fluid generally consists of dispersed phase (particles/nanoparticles) suspended in carrier phase (oil). Looking at the hitherto technical worth of nanomaterials derived electrorheological fluids, this review article is planned to highlight state of the art, key characteristics, overall efficiency requirements, structure-property-performance advantages, and downsides of these smart fluids. As per research advances to date, wide ranging nanocarbons (graphene, carbon nanotube), inorganic (metal/metal oxide, MOF, nanoclay), polymers (conducting, thermoplastics), and polymeric hybrids have been investigated as dispersed phases of electrorheological fluids. Among polymeric nanocomposites for electrorheological fluid designs, conductive/nonconducting matrices (polyaniline, polypyrrole, polystyrene, polyethylene, poly(methyl methacrylate), cellulose/chitosan, etc.) have been reinforced with nanocarbon/inorganic nanoparticles. Consequently, this article debates significant electrorheological characteristics, including dispersed phase particle size, microstructure, electrical/dielectric, shear stress/rate, heat/mechanical stability, and overall electrorheological efficiency. Incidentally, crucial application of polymer/nanocomposite-based electrorheological fluids for automotive/aerospace (engine performance, lubricants), flexible electronics (actuators, devices), and biomedical (endoscopy devices) was documented. Owing to literature coverage and systematic elaborations, this manuscript will offer a comprehensive resource for scientific community seeking future progresses on high-tech industrial-level smart fluids.