Commercialized lithium iron phosphate (LiFePO4) batteries have become mainstream energy storage batteries due to their incomparable advantages in safety, stability, and low cost. However, LiFePO4 (LFP) batteries still have the problems of capacity decline, poor low-temperature performance, etc. The problems are mainly caused by the following reasons: (1) the irreversible phase transition of LiFePO4; (2) the formation of the cathode–electrolyte interface (CEI) layer; (3) the dissolution of the iron elements; (4) the oxidative decomposition of the electrolyte; (5) the repeated growth and thickening of the solid–electrolyte interface (SEI) film on the anode electrode; (6) the structural deterioration of graphite anodes; (7) the growth of lithium dendrites. In order to eliminate the problems, methods such as the modification, doping, and coating of cathode materials, electrolyte design, and anode coating have been studied to effectively improve the electrochemical performance of LFP batteries. This review briefly describes the working principle of the LFP battery, the crystal structure of the LFP cathode material, and its electrochemical performance as a cathode. The performance degradation mechanism of LFP batteries is summarized in three aspects—cathode material, anode material, and electrolyte—and the research status of LFP material modification and electrolyte design is emphatically discussed. Finally, the challenges and future development of LFP batteries are prospected.