Bioactive peptides, short chains of amino acids encrypted within food proteins, have emerged as significant biofunctional components with a wide range of physiological benefits. Released during enzymatic hydrolysis, microbial fermentation, or gastrointestinal digestion, these peptides exhibit diverse biological activities, including antihypertensive, antioxidant, antimicrobial, antidiabetic, and immunomodulatory effects. With growing interest in functional foods and natural health-promoting agents, bioactive peptides are increasingly utilized in the food, nutraceutical, and pharmaceutical industries. This review explores the primary sources and advanced extraction techniques of bioactive peptides, elaborates on their mechanisms of action and associated health benefits, and evaluates their industrial applications. Furthermore, the article discusses the current challenges in standardization, bioavailability, and regulatory validation, while highlighting future directions in peptide-based functional product development. As scientific interest and technological capabilities advance, bioactive peptides hold promise for personalized nutrition, preventive healthcare, and sustainable food innovation.