Protein-rich fish processing by-products, often called rest raw materials (RRM), account for approximately 60% of the total fish biomass. However, a considerable amount of these RRM is utilized for low-value products such as fish meal and silage. A promising and valuable approach for maximizing the utilization of RRM involves the extraction of bioactive fish protein hydrolysate (FPH). This review assesses and compares different hydrolyzation methods to produce FPH. Furthermore, the review highlights the purification strategy, nutritional compositions, and bioactive properties of FPH. Finally, it concludes by outlining the application of FPH in food products together with various safety and regulatory issues related to the commercialization of FPH as a protein ingredient in food. This review paves the way for future applications by highlighting efficient biotechnological methods for valorizing RRM into FPH and addressing safety concerns, enabling the widespread utilization of FPH as a valuable and sustainable source of protein.