The dielectric function of a dipolar liquid exhibits a strong wavenumber dependence in the bulk homogeneous state. Such a behavior seems to suggest the possibility of a strong system size dependence of the dielectric constant (DC) of a nanoconfined liquid, although details have been revealed only recently. The dielectric properties of nanoconfined water, indeed, show a marked sensitivity not only to the size and shape (dielectric boundaries) of confinement but also to the nature of surface–water interactions. For geometries widely studied, namely, water confined in a narrow slit, nanocylinder, and nanospherical cavity, the asymptotic approach to the bulk value of the DC with the increase in confinement size is found to be surprisingly slow. This seems to imply the appearance of a dipolar cross correlation length, much larger than the molecular length-scale of water. In narrow slits and narrow cylinders, the dielectric function becomes both inhomogeneous and anisotropic, and the longitudinal and transverse components display markedly different system size dependencies. This sensitivity can be traced back to the dependence of the DC on the ratio of the mean square dipole moment fluctuation to the volume of the system. The observed sensitivity of collective dipole moment fluctuations to the length scale of confinement points to the possibility of using DC to estimate the orientational correlation length scale, which has been an elusive quantity. Furthermore, the determination of volume also requires special consideration when the system size is in nanoscale. We discuss these and several other interesting issues along with several applications that have emerged in recent years.