<p>The growing demand for functional foods and the need to reduce food waste have increased interest in valorizing fruit and vegetable processing by-products as sustainable sources of bioactive compounds. These agri-food co-products contain valuable phytochemicals, including polyphenols, dietary fibres, vitamins, and antioxidants, which can be recovered and converted into bioactive-rich powders for food applications. This review provides a quantitative and application-oriented overview of strategies for converting fruit and vegetable waste and by-products into bioactive-rich powders for functional food applications. It critically examines conventional and emerging extraction technologies, including ultrasound-, microwave-, and pulsed electric field-assisted methods, and evaluates their influence on compound recovery, stability, and powder functionality. The incorporation of these powders into bakery, dairy, and beverage products demonstrates improvements in nutritional value and technological performance, while potential applications in the pharmaceutical and cosmetic industries further expand their utilization. Overall, the findings confirm that valorization of these by-products represents a promising pathway for producing high-value products, supporting sustainable agriculture, stimulating local economies, and fostering innovation and export opportunities. However, challenges remain in process optimization, product stability, and large-scale industrial implementation. Future research should therefore focus on standardized processing approaches, economic feasibility, and long-term product quality to enable sustainable commercialization of waste-derived functional ingredients and strengthen their role in circular bioeconomy systems.</p>