The textile industry faces increasing pressure to adopt more sustainable practices and innovative processing techniques to reduce environmental impacts associated with conventional textile production. Cellulose, a naturally abundant polymer, is traditionally sourced from cotton and wood pulp; however, these sources often face challenges like high water usage, deforestation, and pesticide dependency. This has influenced the shift in material sourcing to environmentally benign alternatives, with the tendency to decrease reliance on resource-intensive crops and promote a closed-loop cycle. Hence, this review paper provides a comprehensive overview of alternative cellulosic materials as promising solutions for sustainable textile production. Additionally, advanced processing techniques, including enzymatic treatment, electrospinning and wet spinning, are investigated to improve fibre quality, reduce resource consumption, and minimise chemical waste. Furthermore, the economic viability and life cycle assessments (LCA) are discussed to provide a holistic view of sustainability impacts and their integration into existing textile supply chains. In addition, the remaining challenges associated with cost-effectiveness and scaling up for mass production are addressed for industrial implementation, adoption, and promotion of the circular economy. Importantly, the chapter contributes to the growing body of knowledge by contextualising recent advancements in alternative cellulose sourcing and processing within the broader landscape of sustainable textile innovation. It underscores the potential of these materials and technologies to support a circular economy, with practical implications for both research and industry adoption.