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Functional foods have gained increasing attention for their dual role in providing essential nutrition and promoting health through the presence of bioactive compounds. These compounds, naturally found in a variety of plant and animal sources, include polyphenols, carotenoids, omega‐3 fatty acids, probiotics, prebiotics, alkaloids, and terpenoids. They exhibit a wide range of therapeutic effects, mediated through mechanisms such as antioxidant activity, anti‐inflammatory responses, modulation of gut microbiota, and enzyme inhibition. This review offers a comprehensive classification of these key bioactive compounds, detailing their natural origins with an emphasis on their mechanisms of action. Additionally, it explores their incorporation into diverse functional food matrices, including fortified beverages, dairy products, snack items, and dietary supplements. Modern biotechnological and AI‐driven approaches have revolutionized the precision, efficacy, and characterization of functional food products by enabling high‐throughput screening of bioactive compounds, predictive modeling for formulation, and large‐scale data mining to identify novel ingredient interactions and health correlations. Despite the growing popularity of functional foods, challenges persist in terms of the stability and bioavailability of bioactive compounds, regulatory hurdles, and consumer acceptance. Addressing these issues is critical to ensuring the efficacy and safety of functional food products. The review also highlights future perspectives in the field, emphasizing the need for innovative delivery systems and multidisciplinary research to enhance the bioavailability, functionality, and accessibility of these products. By highlighting the challenges and proposing possible solutions, this review serves as a foundational reference for bridging the gap among researchers, healthcare professionals, and stakeholders. Functional foods enriched with bioactive compounds such as polyphenols, carotenoids, omega‐3 fatty acids, and probiotics provide therapeutic benefits through antioxidant, anti‐inflammatory, and gut‐modulating mechanisms. Advances in biotechnology and AI have improved screening, formulation, and delivery of these compounds in diverse food matrices including dairy, beverages, and supplements. Despite challenges in stability, bioavailability, and regulation, innovative strategies and multidisciplinary research offer promising solutions to enhance efficacy, safety, and consumer acceptance of functional foods.