Packaging serves as a pivotal component in addressing food losses by extending the shelf life and preserving the quality of both raw and processed food products. Nevertheless, conventional plastic packaging has substantial environmental drawbacks due to its non‐biodegradable nature and the inclusion of potentially harmful chemical components. As a result, there is a global shift toward biodegradable packaging obtained from natural sources as a more environmentally friendly and sustainable alternative. In this regard, biodegradable coatings made up of natural sources are very efficient for food packaging purposes because of various significant properties. Moreover, huge amounts of food waste are produced globally, leading to environmental pollution. Utilization of this waste is crucial, with one significant application being the extraction of essential oils (EOs). These oils are incorporated into different coatings materials to enhance their functional properties for better preservation of food products. So, this review covers the potential of EOs derived from food waste materials as bioactive compounds incorporated in biodegradable coatings for enhancing the storage quality and shelf life of food products. The biodegradable coatings enriched with these EOs thereby reduce microbial spoilage, stop moisture loss and act as a barrier against gases that ultimately enhance the product's shelf life. These coatings with EOs also reduce weight loss and stabilize other parameters such as pH, colour, acidity and firmness of food commodities. Different packaging systems using waste‐derived EOs have been developed to preserve both plant and animal‐origin foods such as fruits, meat, fish, shrimp, mushrooms and cheese. Developing biodegradable packaging from natural polymers along with the incorporation of EOs from food waste is an innovative way of food preservation and waste management.