Psychiatric illnesses are a leading cause of disability and morbidity globally. However, the preferred orally dosed pharmacological treatment options available for depression, anxiety and schizophrenia are often limited by factors such as low drug aqueous solubility, food effects, high hepatic first-pass metabolism effects and short half-lives. Furthermore, the discovery and development of more effective psychotropic agents has stalled in recent times, with the majority of new drugs reaching the market offering similar efficacy, but suffering from the same oral delivery concerns. As such, the application of nanomedicine formulation approaches to currently available drugs is a viable option for optimizing oral drug delivery and maximizing treatment efficacy. This review focuses on the various delivery challenges encountered by psychotropic drugs, and the ability of nanomedicine formulation strategies to overcome these. Specifically, we critically review proof of concept in vitro and in vivo studies of nanoemulsions/microemulsions, solid lipid nanoparticles, dendrimers, polymeric micelles, nanoparticles of biodegradable polymers and nanosuspensions, and provide new insight into the various mechanisms for improved drug performance. The advantages and limitations of current oral nanomedicine approaches for psychotropic drugs are discussed, which will provide guidance for future research directions and assist in fostering the translation of such delivery systems to the clinical setting. Accordingly, emphasis has been placed on correlating the in vitro/in vivo performance of these nanomedicine approaches with their potential clinical outcomes and benefits for patients.