The public’s demand for natural, eco-friendly, and safe pigments is significantly increasing in the current era. Natural pigments, especially fungal pigments, are receiving more attention and seem to be in high demand worldwide. The immense advantages of fungal pigments over other natural or synthetic pigments have opened new avenues in the market for a wide range of applications in different industries. In addition to coloring properties, other beneficial attributes of fungal pigments, such as antimicrobial, anticancer, antioxidant, and cytotoxic activity, have expanded their use in different sectors. This review deals with the study of fungal pigments and their applications and sheds light on future prospects and challenges in the field of fungal pigments. Furthermore, the possible application of fungal pigments in the textile industry is also addressed.