The Monascus fermentation industry has gained global attention. Its key products, i.e., pigments, functional food ingredients, food supplements, and medicinal use, are growing in the world’s market. Efforts to find the cost-effective substrate for Monascus fermentation have remained the target. This paper aimed to appraise the utilization of agro-industrial by-products (cereal, starchy tuber and root, legume, fruit, and coffee processing) as a cost-effective substrate for Monascus fermentation. The specific objective was to review the by-products pre-treatment, the fermentation process, product yield, and the bioactivity of the fermented products. Among all the by-products that could be used as the fermentation substrate, cereal brans do not need pre-treatment, but others need a suitable pre-treatment step, e.g., cassava peel, okara, and jackfruit seed to list a few, that need to be powdered beforehand. Other substrates, such as corn cob and durian seed, need soaking and size reduction through the pre-treatment step. During fermentation, Monascus produce many pigments, monacolin K, associated with rise in phenolic and flavonoid contents. These products possess antioxidant, antihypercholesterol, antidiabetes, and antiatherosclerosis activities which underpin their health significance. In conclusion, we report in this review the agro-industrial by-products which have potential prospects for pigments, functional food ingredients, food supplements, and therapeutic usages produced from Monascus fermentation.