The concept of the protein transition represents a shift from a diet rich in animal proteins to one richer in plant-based alternatives, largely in response to environmental sustainability concerns. However, a simple swap by replacing dairy protein with plant protein will lead to lower protein quality and a lower intake of key micronutrients that sit naturally within the dairy matrix. Owing to antagonistic effects within the plant food matrix, micronutrients in plant sources exhibit lower bioavailability which is not reflected in food composition data or dietary guidelines. The dairy matrix effect includes moderation of blood lipid levels in which calcium plays a key role. Protein recommendations often take a muscle-centric approach. Hence, strategies to increase the anabolic potential of plant proteins have focused on increasing total protein intake to counter the suboptimal amino acid composition relative to dairy protein or leucine fortification. However, emerging evidence indicates a role for nutrient interactions and non-nutrient components (milk exosomes, bioactive peptides) of the dairy matrix in modulating postprandial muscle protein synthesis rates. To ensure food system transformation is environmentally sustainable and optimal from a nutrition perspective, consideration needs to be given to complementary benefits of different food matrices and the holistic evaluation of foods in the protein transition. This narrative review critically examines the role of dairy in the protein transition, emphasizing the importance of the food matrix in nutrient bioavailability and muscle health. By considering both nutritional and sustainability perspectives, we provide a holistic evaluation of dairy’s contribution within evolving dietary patterns.