Marine algae like brown, red, blue and green algae are a rich source of polysaccharides. Accumulating evidence has demonstrated that seaweed polysaccharides are bioactive substances that have a variety of physiological functions and health benefits such as immune regulation, antioxidant, anti-tumor and anti-inflammatory effects, blood lipid reduction, liver protection, and protection against radiation. In addition, seaweed polysaccharides have been used for many functions in foods as a thickener, stabilizer and humectant. This paper reviews the preparation methods, physiological functions and health benefits of seaweed polysaccharides, with an especial focus on the recent progress in their application in the dairy industry. This review concludes with an outlook on future hotspots and trends in the research and application of seaweed polysaccharides, which may lay a theoretical foundation for wider application in the dairy industry.