In many developing countries, the abundance of agro-industrial by-products exacerbates food insecurity and malnutrition. These by-products, often discarded as waste, are rich in valuable nutrients and bioactive compounds that can enhance food products or create new food sources. Utilizing agro-industrial by-products as functional food ingredients offers a sustainable and innovative way to improve the nutritional profile and functionality of foods. These by-products are packed with dietary fibers, antioxidants, vitamins, and minerals, which can significantly benefit human health. Incorporating them into food formulations not only reduces environmental waste but also supports a circular economy by transforming waste into valuable resources. This chapter explores the potential of various agro-industrial by-products, such as fruit peels, seed husks, and vegetable residues, as functional ingredients. It highlights their nutritional benefits, functional properties, and the technological advancements that facilitate their integration into mainstream food products. Additionally, the chapter addresses consumer acceptance and regulatory considerations, emphasizing the need for further research and industrial applications to fully realize the benefits of these sustainable ingredients. By leveraging agro-industrial by-products, the food industry can move toward more sustainable and health-oriented food systems, ultimately contributing to global food security and environmental sustainability.