Abstract: The plasma-enhanced process, leveraging the unique properties of thermal plasma—including extreme temperatures (~ 10⁴ K), high energy density, high chemical activity and rapid quenching rates—offers a distinct advantage over conventional methods for powder material synthesis and processing. This review comprehensively examines the principles and applications of thermal plasma in tailoring powder properties. Beginning with a clear technological positioning that contrasts thermal plasma with mainstream conventional powder synthesis methods, highlighting its unique role in processing extreme materials and enabling single-step synthesis through integrated physical and chemical transformations, the discussion then proceeds to a detailed examination of its various applications in materials processing. It first delves into plasma spheroidization, detailing how it transforms irregular powders into dense particles with high sphericity and superior flowability for additive manufacturing, and elaborates on the three-stage mechanism (melting, volume change and solidification) of forming hollow spherical particles from porous aggregates for functional applications. The review then explores plasma-enhanced physical vapor deposition (PEPVD), illustrating its capability for dimension-controlled nanomaterial synthesis, where precisely manipulated temperature fields and cooling rates dictate the nucleation and growth pathways, enabling the synthesis of nanomaterials with diverse and tailored architectures. A significant focus is placed on plasma-enhanced chemical synthesis (PECS), systematically presented along a progression of increasing chemical complexity. This includes efficient pyrolysis of precursor compounds to synthesize nanoparticles; hydrogen plasma reduction of metal oxides for green metallurgy; oxidation of metals to create spherical oxides or complex nanostructures; and the synthesis of non-oxide compounds such as nitrides, borides and sulfides via multi-component/multi-phase reactions. The review highlights how the unique plasma environment overcomes the limitations of conventional methods, enabling rapid, efficient and controllable fabrication of materials, with promising yield and scalability for applications. Finally, perspectives on fundamental mechanisms, intelligent process control and industrialization challenges—supported by a techno-economic analysis highlighting its strategic positioning for high-value products despite high capital expenditure—are discussed to guide future development in this dynamic field.