Dry powder inhaler (DPI) is an attractive dosage form for local and systemic pulmonary drug delivery. However, designing DPIs with adequate physicochemical properties is challenging. The development of novel pulmonary drug delivery systems requires the selection of suitable particle engineering techniques, carriers, and excipients. In addition, optimization of physico-chemical properties of such systems is critical for their efficient delivery and drug release. This review highlights the recent advances in the field of inhalable dry powder formulations with a special emphasis on the current particle engineering techniques, challenges in the development of novel pulmonary drug delivery systems, selection of a suitable carrier and excipients, and the evaluation of factors impacting aerosolization. Lastly, the review also discusses the current and emerging applications of DPIs for local and systemic drug delivery.