Matricaria chamomilla L. (a.k.a. German chamomile) is a widely recognized medicinal plant with extensive therapeutic properties and traditional and modern applications in many fields. For centuries, Matricaria chamomilla extract (MCE) has been utilized in conventional medicine due to its rich content of bioactive compounds, including flavonoids, terpenoids, phenolics, and coumarins. Chamomile, therefore, has exhibited remarkable anti-inflammatory, antioxidant, anxiolytic, antimicrobial, antithrombotic, and wound-healing properties as a natural alternative with fewer side effects and improved patient compatibility. This review outlines several innovative methods for obtaining MCE, evaluates its phytochemical composition, and valorizes its therapeutic potential in various health conditions. Emphasis is placed on its role in managing oxidative stress- or inflammation-related diseases, chronic disorders, cardiovascular diseases, cancer, mental health issues, and neurodegenerative disorders. Furthermore, the bioavailability of its bioactive constituents, recent advancements in chamomile-based formulations, and future research directions are also discussed. Given its safety profile and broad spectrum of biological activities, chamomile remains a promising candidate for pharmaceutical, nutraceutical, and cosmetic applications.