Essential oils (EOs) are secondary metabolites synthesised by many aromatic plants, which have good antimicrobial and antioxidant activities making them popular functional agents for food preservation and packaging applications. In recent years, novel extraction techniques, such as super critical fluid extraction, pulsed electric field assisted extraction and ultrasound assisted extraction have been explored as alternatives to the conventional solvent‐based extraction methods. This review mainly discusses on recent progresses in sustainable extraction of essential oil (EO) from aromatic plants and food processing wastes and their functional properties, and applications in food preservation have also been summarised. Sustainable extraction techniques yield better‐quality EO due to low temperature and short time process compared to the conventional extraction. Despite efficacy of EOs as good active agents, their low water solubility, volatile nature, strong flavour, and susceptibility to food processing parameters are major challenges against their applications in food. These challenges can be mitigated by advanced techniques such as encapsulation and nanoemulsification of EO, which provide dual functions of enhanced applicability and improved functional properties. Incorporation of EO in the biopolymer‐based films and coatings can open avenues for sustainable food packaging and preservation.