Abstract Background Single-domain antibodies (sdAbs), also known as nanobodies or VHHs, are characterized by high stability and solubility, thus maintaining the affinity and therapeutic value provided by conventional antibodies. Given these properties, VHHs offer a novel alternative to classical antibody approaches. To date, VHHs have been produced mainly in E. coli, yeast, plants and mammalian cells. To apply the single-domain antibodies as a preventive or therapeutic strategy to control rotavirus infections in developing countries (444,000 deaths in children under 5 years of age) has to be minimized their production costs. Results Here we describe the highly efficient expression of functional VHHs by the Improved Baculovirus Expression System (IBES® technology), which uses a baculovirus expression vector in combination with Trichoplusia ni larvae as living biofactories. Two VHHs, named 3B2 and 2KD1, specific for the inner capsid protein VP6 of Group A rotavirus, were expressed in insect larvae. The IBES® technology achieved very high expression of 3B2 and 2KD1, reaching 2.62% and 3.63% of the total soluble protein obtained from larvae, respectively. These expression levels represent up to 257 mg/L of protein extract after insect processing (1 L extract represents about 125 g of insect biomass or about 375 insect larvae). Larva-derived antibodies were fully functional when tested in vitro and in vivo, neutralizing Group A rotaviruses and protecting offspring mice against rotavirus-induced diarrhea. Conclusions Our results open up the possibility of using insects as living biofactories (IBES® technology) for the cost-efficient production of these and other fully functional VHHs to be used for diagnostic or therapeutic purposes, thereby eliminating concerns regarding the use of bacterial or mammalian cells. To the best of our knowledge, this is the first time that insects have been used as living biofactories to produce a VHH molecule.