Owing to the public health concern associated with the consumption of added sugar, the World Health Organization recommends cutting down sugar in processed foods. Furthermore, due to the growing concern of increased calorie intake from added sugar in sweetened dairy foods, the present review provides an overview of different types and functions of sugar, various sugar reduction strategies, and current trends in the use of sweeteners for sugar reduction in dairy food, taking flavoured milk as a central theme where possible to explore the aforementioned aspects. The strength and uniqueness of this review are that it brings together all the information on the available types of sugar and sugar reduction strategies and explores the current trends that could be applied for reducing sugar in dairy foods without much impact on consumer acceptance. Among different strategies for sugar reduction, the use of natural non-nutritive sweeteners (NNSs), has received much attention due to consumer demand for natural ingredients. Sweetness imparted by sugar can be replaced by natural NNSs, however, sugar provides more than just sweetness to flavoured milk. Sugar reduction involves multiple technical challenges to maintain the sensory properties of the product, as well as to maintain consumer acceptance. Because no single sugar has a sensory profile that matches sucrose, the use of two or more natural NNSs could be an option for food industries to reduce sugar using a holistic approach rather than a single sugar reduction strategy. Therefore, achieving even a small sugar reduction can significantly improve the diet and health of an individual.