Food processing by-products constitute a rich reservoir of bioactive compounds and natural pigments, offering significant potential for applications in functional food development, nutraceuticals, food additives, and cosmeceuticals. Lycopene, a naturally occurring carotenoid, exhibits potent antioxidative and bioactive properties and is primarily responsible for the red pigmentation in various plant sources. Industrial by-products of plant origin represent a valuable and sustainable source for lycopene extraction. The growing scientific interest in lycopene is driven by accumulating evidence from in vitro, in vivo, and ex vivo studies, which consistently correlate lycopene-rich dietary intake with a reduced incidence of various pathophysiological conditions, including carcinogenesis, cardiovascular disorders, and metabolic diseases such as diabetes. This review provides a comprehensive analysis of the physicochemical characteristics, absorption kinetics, metabolic pathways, and biodistribution of lycopene and its derivatives within the human body. Additionally, the molecular interactions of lycopene with other bioactive constituents are explored to elucidate its mechanistic roles in disease prevention. Furthermore, the influence of food processing techniques on the structural integrity, stability, and bioavailability of lycopene is critically examined, with the objective of optimizing its functional applications in health and disease management.