The growing need for sustainable protein and peptide sources has spurred advancements in biomanufacturing, with engineered fungal cell factories emerging as a viable solution. Fungi offer unique advantages, including metabolic versatility, rapid growth, and scalability, making them ideal platforms for producing biopharmaceuticals, nutraceuticals, and alternative proteins. Recent progress in genetic engineering—such as CRISPR-Cas9, RNA interference, and omics-driven strategies—has enhanced the ability to modify fungi for high-yield production of therapeutic proteins and bioactive peptides. Engineered fungi like Aspergillus, Trichoderma, and Saccharomyces are increasingly used to produce valuable biomolecules such as enzymes, insulin, and antimicrobial peptides. These organisms naturally secrete large quantities of proteins, making them particularly attractive for industrial-scale applications. This article reviews technological innovations transforming fungi into efficient production platforms. The integration of systems biology, synthetic biology, and advanced fermentation has enabled optimization of metabolic pathways, reduced byproduct formation, and improved protein expression. Fungal cell factories are also environmentally sustainable, requiring fewer resources and offering a lower carbon footprint than conventional protein production systems, such as animal-based or bacterial processes. Despite these advantages, challenges persist in scale-up, cost-effectiveness, and regulatory compliance. The article discusses current limitations and presents strategies to address them, including adaptive laboratory evolution and bioprocess optimization. It also highlights successful case studies where engineered fungi have been used in the production of biopharmaceuticals and sustainable proteins, underlining their transformative potential in biomedical and industrial applications.