Small-sized dairy farms (SSDFs) are integral to the agricultural landscape, providing economic, social, and environmental benefits to rural communities. However, they face growing challenges, including market volatility, rising production costs, labor shortages, and complex regulatory demands. This review synthesizes the current literature on the economic and environmental obstacles confronting SSDFs and explores strategies to enhance their sustainability and competitiveness. Key barriers include limited access to capital, high feed and energy expenses, and difficulties in adopting new technologies due to financial constraints. SSDFs also struggle to compete with larger farms benefiting from economies of scale and increased market power. Potential solutions include strengthening cooperative models, implementing diversification strategies, and leveraging policy support for targeted financial assistance and technology adoption. Case studies of successful SSDFs show that transitioning to organic production, adopting climate-smart techniques, and focusing on niche markets can significantly improve profitability and resilience. This review emphasizes the need for tailored policy frameworks, innovative financial models, and collaboration among stakeholders to support SSDFs. Future research should prioritize understanding SSDF-specific financial dynamics, assessing the cost-effectiveness of technology adoption, and developing strategies to enhance market access and long-term sustainability in the U.S. dairy sector.