Functionalized optical microcavities constitute an emerging highly sensitive and highly selective sensing technology. By combining optical microcavities with novel materials, microcavity sensors offer exceptional precision, unlocking considerable potential for medical diagnostics, physical and chemical analyses, and environmental monitoring. The high capabilities of functionalized microcavities enable subwavelength light detection and manipulation, facilitating the precise detection of analytes. Furthermore, recent advancements in miniaturization have paved the way for their integration into portable platforms. For leveraging the potential of microcavity sensors, it is crucial to address challenges related to the need for increasing cost-effectiveness, enhancing selectivity and sensitivity, enabling real-time measurements, and improving fabrication techniques. New strategies include the use of advanced materials, the optimization of signal processing, hybrid design approaches, and the employment of artificial intelligence. This review outlines the key strategies toward enhancing the performance of optical microcavities, highlights their broad applicability across various fields, and discusses the challenges that should be overcome to unlock their full potential.