<p>Bioactive peptides (BAPs) are short amino acid sequences released from precursor proteins through enzymatic hydrolysis, fermentation, or gastrointestinal digestion. Due to their diverse biological properties, BAPs have attracted significant attention for potential applications in functional foods, nutraceuticals, and therapeutic research. These peptides exhibit a wide range of activities, including antihypertensive, antioxidant, antimicrobial, anti-inflammatory, immunomodulatory, and anticancer effects, although the majority of current evidence remains derived from in vitro and preclinical studies. This comprehensive critical review summarises the major sources, production strategies, structural characteristics, and biological functions of food-derived bioactive peptides. Emphasis is placed on structure–activity relationships (SAR), residue-specific functional contributions, and molecular mechanisms underlying peptide bioactivity, including enzyme inhibition, membrane interaction, reactive oxygen species scavenging, and modulation of intracellular signalling pathways. In addition, the review critically evaluates translational and clinical limitations associated with bioactive peptides, including poor bioavailability, gastrointestinal instability, variability in peptide purification, and limited large-scale clinical validation. Comparative analytical synthesis further highlights the relationship between peptide sequence, structural features, and functional efficacy across different peptide classes. Overall, this comprehensive critical review provides an integrated synthesis of current evidence by combining structure–activity relationships (SAR) with mechanistic and translational insights, while highlighting major research gaps, clinical limitations, and future directions for peptide design, clinical evaluation, and functional food applications.</p> Graphical Abstract <p></p>