Sodium-ion batteries (SIBs) have attracted enormous attention as candidates in stationary energy storage systems, because of the decent electrochemical performance based on cheap and abundant Na-ion intercalation chemistry. Layered oxides, the workhorses of modern lithium-ion batteries, have regained interest for replicating their success in enabling SIBs. A unique feature of sodium layered oxides is their ability to crystallize into a thermodynamically stable P2-type layered structure with under-stoichiometric Na content. This structure provides highly open trigonal prismatic environments for Na ions, permitting high Na+ mobility and excellent structural stability. This review delves into the intrinsic characteristics and key challenges faced by P2-type cathodes and then comprehensively summarizes the up-to-date advances in modification strategies from compositional design, elemental doping, phase mixing, morphological control, and surface modification to sodium compensation. The updated understanding presented in this review is anticipated to guide and expedite the development of P2-type layered oxide cathodes for practical SIB applications.