Lactic acid bacteria (LAB) are essential in the production of fermented dairy products, contributing to desirable sensory attributes, safety, and shelf life. Traditionally, the health-promoting properties of fermented dairy products have been associated with live probiotic LAB; however, ensuring their viability during processing, storage and gastrointestinal passage remains challenging. This has shifted scientific interest toward postbiotics—preparations consisting of inactivated microbial cells, cell components and fermentation-derived metabolites capable of resulting in health benefits without the survival of microorganisms. LAB-derived postbiotics include bioactive peptides, exopolysaccharides and cell wall fragments, which may support gut barrier function, exert immunomodulatory or antimicrobial effects and improve technological performance in dairy matrices. Their stability, predictable functionality, and favourable safety profile make them suitable alternatives or supplements to traditional probiotics. In dairy applications, postbiotics can be produced in situ during fermentation or incorporated as formulated ingredients to enhance product functionality and deliver consistent bioactivity. In addition to highlighting the technological benefits of LAB-derived postbiotics in dairy systems and assessing new regulatory frameworks, this review summarizes the current understanding of their classification, composition, and mechanisms of action. Key challenges related to definition, standardization, safety assessment and labeling are discussed to support future development of postbiotic-enriched functional dairy foods.