<p>Functional foods are defined as foods which provide health benefits beyond basic nutrition. In recent times, the world has been witnessing an exponential demand for functional foods. Growing interests for healthy and sustainable life style among population, increasing awareness regarding holistic wellbeing and rising medical expenses are some possible reasons for the demand and enhanced market for the functional food industry. Of late, researches in the functional food sector focus mainly on the utilization of agricultural by-products as a potential raw material and alternative nutrient source, owing to the considerable presence of bioactive compounds and cost effectiveness. In the agricultural sector, banana production industry creates substantial quantity of biomass, including peels, leaves, fruit bunch, pseudostem, rhizome and inflorescence, among others. These by-products find several potential food and non-food applications, paving way to waste valourisation. Researchers have also identified different bioactive components from banana by-products and their associated health benefits. These powerful components can be used for the development of various functional foods by the industry. Furthermore, utilisation of banana by-products will reduce the cost of raw materials and aid in effective pollution control, thereby generating a green alternative source of bioactive compounds. This review includes a summary of existing literature pertaining to the value addition, nutraceutical properties and applications of banana by-products.</p>