Exosomes are nano-sized membrane vesicles that transfer bioactive molecules between cells and modulate various biological processes under physiological and pathological conditions. By applying bioengineering technologies, exosomes can be modified to express specific markers or carry therapeutic cargo and emerge as novel platforms for the treatment of cancer, neurological, cardiovascular, immune, and infectious diseases. However, there are many challenges and uncertainties in the clinical translation of exosomes. This review aims to provide an overview of the recent advances and challenges in the translation of engineered exosomes, with a special focus on the methods and strategies for loading drugs into exosomes, the pros and cons of different loading methods, and the optimization of exosome production based on the drugs to be encapsulated. Moreover, we also summarize the current clinical applications and prospects of engineered exosomes, as well as the potential risks and limitations that need to be addressed in exosome engineering, including the standardization of exosome preparation and engineering protocols, the quality and quantity of exosomes, the control of drug release, and the immunogenicity and cytotoxicity of exosomes. Overall, engineered exosomes represent an exciting frontier in nanomedicine, but they still face challenges in large-scale production, the maintenance of storage stability, and clinical translation. With continuous advances in this field, exosome-based drug formulation could offer great promise for the targeted treatment of human diseases.