<p>Activated carbon (AC) has garnered a significant attention for its wide-ranging applications in energy storage and carbon dioxide (CO₂) capture. While fossil-derived AC has traditionally dominated these sectors, growing environmental concerns and the push for sustainability have steered research toward agro-waste-derived alternatives. AC produced from agro-waste offers a promising and sustainable substitute, demonstrating enhanced performance in various environmental applications. The activation process not only enhances porosity but also optimizes the surface area of these materials. In the context of functionality and porosity, chemical activation is more effective than other methods, enhancing adsorption, reactivity, and overall materials’ performance. By fine-tuning activation parameters, the resulting materials exhibit micro and meso-porosity, enabling high adsorption capacities and efficient mass transport. These properties make them ideal candidates for advanced applications. This review explores the necessity of physiochemical synthesis of AC from agro-waste using chemical activation techniques over the conventional method to achieve superior functional properties. Additionally, the physiochemical activation process is examined in detail to illustrate the role of activating agents in tailoring surface functionalities. The benefits of chemical activation and functionalized AC for enhanced performance in heavy metals’ removal, energy storage and CO₂ capture are highlighted, emphasizing its potential as a sustainable alternative in environmental applications.</p>