Preterm birth still causes significant mortality and morbidity in newborns, despite modern advancements in preterm care. The gut microbiota is the most significant microbial colonization in the human body and plays a significant role in supporting a healthy body. Preterm infants are susceptible to gut dysbiosis, which is thought to contribute to the many adverse outcomes of prematurity, such as necrotizing enterocolitis (NEC), late-onset sepsis (LOS), and developmental delays. Human breast milk is considered the ideal nutrition source for newborns and can help create ideal microbiota in preterm infants. Breast milk contains human milk oligosaccharides (HMO), prebiotics that promote beneficial bacteria growth, absent in cow's milk. Supplementation of non-milk oligosaccharides such as long-chain fructo-oligosaccharides (lcFOS) and small-chain galacto-oligosaccharides (scGOS) in formula milk for preterm infants is found to be beneficial with a favourable safety profile. This review discusses gut microbiota in preterm neonates, its role in developing immune systems, growth and development, and the benefits of prebiotic supplementation.