Natural pigments and colorants have seen a substantial increase in use over the last few decades due to their eco-friendly and safe properties. Currently, customer preferences for more natural products are driving the substitution of natural pigments for synthetic colorants. Filamentous fungi, particularly ascomycetous fungi (Monascus, Fusarium, Penicillium, and Aspergillus), have been shown to produce secondary metabolites containing a wide variety of pigments, including β-carotene, melanins, azaphilones, quinones, flavins, ankaflavin, monascin, anthraquinone, and naphthoquinone. These pigments produce a variety of colors and tints, including yellow, orange, red, green, purple, brown, and blue. Additionally, these pigments have a broad spectrum of pharmacological activities, including immunomodulatory, anticancer, antioxidant, antibacterial, and antiproliferative activities. This review provides an in-depth overview of fungi gathered from diverse sources and lists several probable fungi capable of producing a variety of color hues. The second section discusses how to classify coloring compounds according to their chemical structure, characteristics, biosynthetic processes, application, and present state. Once again, we investigate the possibility of employing fungal polyketide pigments as food coloring, as well as the toxicity and carcinogenicity of particular pigments. This review explores how advanced technologies such as metabolic engineering and nanotechnology can be employed to overcome obstacles associated with the manufacture of mycotoxin-free, food-grade fungal pigments.