<p>The pace of electrification is surging, and recycling is key towards a circular battery life&#xa0;cycle. However, as the usage of lithium-ion batteries (LIBs) expands in modern technologies and ever more complex elements are incorporated, complicated degradation behaviours are introduced, posing challenges for recycling. Metallurgy-based material extraction methods are independent of the complexity of materials decay but at the cost of compromised economic and environmental sustainability. Although direct regeneration is expected to reduce the environmental impact of recycling and improve its economic benefits, it cannot properly deal with failure at different scales and parameters. To effectively manage the growing stream of spent LIBs, strategies on multiple fronts are imperative. Recent developments in recycling mechanisms have highlighted the importance of understanding battery failure mechanisms to achieve environmentally friendly and sustainable recycling practices. In this Review, failure mechanisms in state-of-the-art LIBs are discussed from the particle scale to the cell scale, offering insights for navigating recycling efforts. Recent advancements in material extraction and direct regeneration are summarized, and perspectives on the most pressing challenges for recycling, optimization of recycling processes, and recycling strategies for next-generation batteries are offered.</p>