Globally, buildings are responsible for 40% of the total world annual energy consumption which is responsible for one-third of green house gas emissions around the world. A significant portion of this energy is used for lighting, heating, cooling, and air conditioning purposes in buildings. Increasing awareness of the environmental impact of green house gas emissions and CFCs triggered a renewed interest in environmentally friendly cooling, and heating technologies for buildings. Free cooling of buildings may be seen as an alternate to compressor based air conditioning systems used for the buildings. In free cooling, nighttime cold is accumulated in storage material and extracted when needed. Latent heat storage using phase change materials (PCMs) can be used for free-cooling purposes due to their high storage density. In free cooling, using PCM as storage material, cool air during night is used to solidify the PCM and the accumulated cold is extracted during the hot day times. In this article a detailed review of work conducted by different researchers on PCM based free cooling is presented. Major challenges being faced in the design of PCM based free cooling system such as phase change materials; their thermo-physical properties and the geometry of encapsulation are elaborated and discussed in detail. Also the parameters effecting the charging and discharging of PCM, effect of phase change temperature and climatic conditions on thermal performance of the free cooling system are also discussed. Potential reduction in CO2 emissions due to the applicability of free cooling systems in residential and commercial buildings is also discussed in this article. This paper also provides a comprehensive list of the PCMs currently being used and that can be used potentially for free cooling applications. At last, this paper also presents some current problems needed further research in this area.