Bananas, widely regarded as a staple fruit within the Musaceae family, are popular for their source of nutrients, particularly their bioactive compounds. However, banana peels (BPs), which are often discarded as food waste, present significant environmental challenges. Over the past two decades, there has been significant growth in the development of value-added food products. Utilizing these largely overlooked fruit by-products presents a promising opportunity for the sustainable use of these edible materials. From the perspectives of sustainability and food security, recognizing the nutritional value of banana peels is a significant achievement. In the context of a circular economy, addressing prospects and challenges is crucial for the sustainability and feasibility of utilizing banana by-products. It is essential to transform all available by-products into commercially viable products to sustain this renewable resource, providing additional income for small-scale farming operations while maintaining quality and safety in competition with other commercial goods. This review emphasizes the rich bioactive compounds and pharmacological properties found in both bananas and their by-products. It also highlights various applications across the food sector, from enhancing food security to creating new sources of income. Furthermore, the review explores the innovative uses of banana flour produced at different ripeness stages and how these by-products can contribute to health benefits and sustainable agriculture. Based on the findings, this chapter highlights several innovative uses of bananas and their by-products as a sustainable source of income for the agricultural industry.