Difructose dianhydride III (DFA III) is a cyclic difructose containing two reciprocal glycosidic linkages. It is easily generated with a small amount by sucrose caramelization and thus occurs in a wide range of food-stuffs during food processing. DFA III has half sweetness but only 1/15 energy of sucrose, showing potential industrial application as low-calorie sucrose substitute. In addition, it displays many benefits including prebiotic effect, low cariogenicity property, and hypocholesterolemic effect, and improves absorption of minerals, flavonoids, and immunoglobulin G. DFA III is biologically produced from inulin by inulin fructotransferase (IFTase, EC 4.2.2.18). Plenty of DFA III-producing enzymes have been identified. The crystal structure of inulin fructotransferase has been determined, and its molecular modification has been performed to improve the catalytic activity and structural stability. Large-scale production of DFA III has been studied by various IFTases, especially using an ultrafiltration membrane bioreactor. In this article, the recent findings on physiological effects of DFA III are briefly summarized; the research progresses on identification, expression, and molecular modification of IFTase and large-scale biological production of DFA III by IFTase are reviewed in detail.