Palygorskite (Pal) is a layered-chain clay mineral characterized by unique one-dimensional nanorod crystals, regular nanochannels and abundant surface active groups. Since the discovery of Pal’s presence in China in 1976, Chinese scientists have resolved the key bottleneck of efficient the disaggregation of the rod crystal bundles restricting its high-value utilization and achieved a fundamental transformation of Pal from a traditional raw mineral material to an advanced functional nanomaterial. The applications of Pal in China have expanded into diverse fields, including energy materials, antibacterial agents, catalysts, tissue engineering scaffolds, hydrogen storage materials, membrane separation materials, functional coatings and pigments, among others. In the case of naturally abundant mixed-dimensional Pal clays with complex mineral compositions, full-mineral synchronous utilization technology has been developed for the fabrication of functional materials based on the differences and complementarities in the structures and properties of the coexisting minerals. This article reviews the significant progress made by Chinese researchers in transforming nanostructured Pal into advanced functional materials, highlighting representative cases in green preparation and sustainable applications. Finally, future key research directions are proposed to promote the efficient and sustainable utilization of Pal resources, aligning with the disciplinary frontier of mineral materialization.