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Functionally graded materials (FGMs) are engineered materials that are inhomogeneous and can be purposefully processed to obtain discrete or continuously varying compositions/microstructures over a definable geometrical length. FGMs can be used in a number of applications, such as aircrafts, combustion nozzles, gas turbines, energy conversion cells, biomaterials, etc. The objective of this paper is to review the new developments in production processes and their prospects in the creation of next-generation FGMs. Traditionally, four potential methods were used for fabrications of FGMs, i.e. powder metallurgy, chemical vapor deposition, self-propagating high-temperature synthesis, and plasma spraying. Some of the recently developed methods are the cast-decant-cast process, friction stir processing, and laser-engineered net shaping, which are usually cost-effective and used to make a quiet change in properties. An effective production method for conversion of the concept of gradient into practice is still a challenge for the research community. In this paper, research works toward meeting these challenges will be highlighted, and the future scopes of investigation in this area will be explored.