The exploration of cellulose, a natural polysaccharide derived from renewable biomass, has seen significant advancements in recent years due to its biocompatibility, biodegradability, and versatility. This review paper comprehensively covers the latest developments in cellulose and its derivatives as functional biomaterials for various biomedical applications. Emphasis is placed on the intrinsic properties of cellulose, such as its mechanical strength, thermal stability, and chemical modifiability, which enable its wide‐ranging use in drug delivery systems, wound dressings, tissue engineering, and biosensors. The article further delves into the modification techniques—such as oxidation, esterification, and etherification—that enhance cellulose's performance, allowing it to be fine‐tuned for specialized medical applications, including the creation of scaffolds for tissue regeneration and smart materials for responsive drug release. Additionally, the hybridization of cellulose with inorganic materials offers potential in developing materials with superior antimicrobial properties and improved mechanical characteristics. This review also addresses the challenges in cellulose processing, particularly concerning optimizing its structure for specific applications, while highlighting future opportunities in the field of personalized medicine and intelligent healthcare devices. By examining both the current innovations and future trends, this review highlights the growing importance of cellulose as a sustainable and versatile resource in the biomedical industry.