A wide spectral coverage from near-infrared (NIR) to far-infrared (FIR) of AKARI both for imaging and spectroscopy enables us to eciently study the emission from gas and dust in the interstellar medium (ISM). In particular, the Infrared Camera (IRC) onboard AKARI oers a unique opportunity to carry out sensitive spectroscopy in the NIR (2{5 m) for the rst time from a spaceborn telescope. This spectral range contains a number of important dust bands and gas lines, such as the aromatic and aliphatic emission bands at 3.3 and 3.4{3.5 m, H2O and CO2 ices at 3.0 and 4.3 m, CO, H2, and HI gas emission lines. In this paper we concentrate on the aromatic and aliphatic emission and ice absorption features. The balance between dust supply and destruction suggests signicant dust processing taking place as well as dust formation in the ISM. Detailed analysis of the aromatic and aliphatic bands of AKARI observations for a number of Hii regions and Hii region-like objects suggests processing of carbonaceous dust in the ISM. The ice formation process can also be studied with IRC NIR spectroscopy eciently. In this review, dust processing in the ISM divulged by recent analysis of AKARI data is discussed.