ABSTRACT This review critically examines the anti‐inflammatory properties of fish‐derived bioactive peptides and highlights their potential role in promoting human health. A significant portion of these bioactive compounds was lost in 2021 through the vast amounts of fish food loss and waste, estimated at nearly 23.8 million tonnes globally, primarily due to wild‐capture discards and underutilized processing by‐products. This not only results in the loss of valuable bioactive peptides but also contributes to environmental pollution and public health risks due to improper waste management. Therefore, valorizing these by‐products as sources of functional peptides offers a dual benefit: enhancing human health and advancing sustainable food system practices. These peptides exhibit strong therapeutic potential by suppressing pro‐inflammatory cytokines, modulating the nuclear factor kappa B (NF‐κB) signaling pathway, reduce oxidative stress, and inhibit key inflammatory enzymes. These peptides effectively downregulate inflammatory mediators such as tumor necrosis factor‐alpha (TNF‐α), interleukin‐6 (IL‐6), and interleukin‐1 beta (IL‐1β). Despite promising preclinical evidence, their clinical applications remain limited, necessitating further in vivo trials. A major challenge in utilizing these peptides is their poor stability and bioavailability. Furthermore, advancements in delivery systems, including nanoencapsulation and hydrogel formulations, are crucial for enhancing the therapeutic potential of these peptides. This review also discusses innovative strategies for overcoming these limitations, emphasizing the need for clinical validation and regulatory standardization. Fish‐derived bioactive peptides present a promising avenue for natural anti‐inflammatory agents in functional foods and pharmaceuticals. Addressing bioavailability challenges and conducting rigorous clinical trials will be key to their successful translation into therapeutic applications.