The rotary engine (RE) is a potential power plant for unmanned aerial vehicles (UAVs) and automobiles because of its structural and design merits. However, it has some serious drawbacks, such as frequent maintenance requirements and excessive fuel consumption. This review paper presents the current status of hydrogen-fueled rotary engine (HRE) technology and identifies the existing research and development gaps in combustion efficiency and performance of this engine that might benefit transportation sector. Focusing primarily on the research from past ten years, the crucial challenges encountered in hydrogen-powered rotary engines have been reviewed in terms of knock, hydrocarbon (HC) emissions, and seal leakages. The paper identifies the recent advances in design concepts and production approaches used in hydrogen-fueled rotary engines such as geometric models of trochoid profiles, port configurations, fuel utilization systems, and currently available computational fluid dynamics (CFD) tools. This review article is an attempt to collect and organize literature on existing design methods up to date and provide recommendations for further improvements in RE technology.