Pet food production is a fast-growing industry. While extruded dry pet food is the favored pet food due to its convenience of use, it may have poorer palatability than other pet foods such as wet pet foods. However, palatability plays a pivotal role in meeting nutritional requirements or providing therapeutic benefits in cats and dogs, as it ensures food acceptance. Thus, both academics and manufacturers conduct routine palatability tests to assess acceptance and preference of products among pets, alongside sensory analyses involving human panels. Palatability is greatly influenced by species-specific and environmental factors in cats and dogs. The review will hence present the current knowledge on palatability assessment and animal food perception; it will then aim to explore strategies for effectively managing palatability in dry pet food by examining the impact of key ingredients and process parameters on the finished product’s palatability. Moreover, the demands and needs for sustainable and healthier products as well as supply constraints present novel challenges and opportunities for academics and manufacturers.