Tremendous progress has been made in the development of lithium-based rechargeable batteries in recent decades. Discoveries of new electrode materials as well as new storage mechanisms have substantially improved battery performance. In particular, nanomaterials design has emerged as a promising solution to tackle many fundamental problems in conventional battery materials. Here we discuss in detail several key issues in batteries, such as electrode volume change, solid–electrolyte interphase formation, electron and ion transport, and electrode atom/molecule movement, and then analyse the advantages presented by nanomaterials design. In addition, we discuss the challenges caused by using nanomaterials in batteries, including undesired parasitic reactions with electrolytes, low volumetric and areal energy density, and high costs from complex multi-step processing, and their possible solutions.