Functional foods are essential food products that possess health-promoting properties for the treatment of infectious diseases. In addition, they provide energy and nutrients, which are required for growth and survival. They occur as prebiotics or dietary supplements, including oligosaccharides, processed foods, and herbal products. However, oligosaccharides are more efficiently recognized and utilized, as they play a fundamental role as functional ingredients with great potential to improve health in comparison to other dietary supplements. They are low molecular weight carbohydrates with a low degree of polymerization. They occur as fructooligosaccharide (FOS), inulooligosaccharadie (IOS), and xylooligosaccahride (XOS), depending on their monosaccharide units. Oligosaccharides are produced by acid or chemical hydrolysis. However, this technique is liable to several drawbacks, including inulin precipitation, high processing temperature, low yields, high production costs, etc. As a consequence, the application of microbial enzymes for oligosaccharide production is recognized as a promising strategy. Microbial enzymatic production of FOS and IOS occurs by submerged or solid-state fermentation in the presence of suitable substrates (sucrose, inulin) and catalyzed by fructosyltransferases and inulinases. Incorporation of FOS and IOS enriches the rheological and physiological characteristics of foods. They are used as low cariogenic sugar substitutes, suitable for diabetics, and as prebiotics, probiotics & nutraceutical compounds. In addition, these oligosaccharides are employed as anticancer & antioxidant agents and aid in mineral absorption, lipid metabolism, immune regulation etc. This review, therefore, focuses on the occurrence, physico-chemical characteristics, and microbial enzymatic synthesis of FOS and IOS from coprophilous fungi. In addition, the potential health benefits of these oligosaccharides were discussed in detail.