Lactulose is a synthetic disaccharide. It can be obtained from lactose by chemical, enzymatic or by electro-activation synthesis. This review provides the comprehension of lactulose production and its application in medical, pharmaceutical and functional food applications. Lactulose can be used in medical and pharmaceutical applications for the treatment of diseases such as chronic constipation, therapy of portal systemic encephalopathy, inflammatory bowel disease, reducing blood ammonia levels, colon carcinogenesis, tumour prevention and immunology, mineral absorption and for the inhibition of the secondary bile acid formation. However, with the growing interest in functional foods, the use of nondigestible oligosaccharides such as prebiotic ingredients has increased considerably during the recent years. In this context, lactulose as a well-recognised prebiotic offers excellent possibilities to develop new functional foods. It can be added to several foods.