Marine ecosystem monitoring requires observations of its attributes at different spatial and temporal scales that traditional sampling methods (e.g., RGB imaging, sediment cores) struggle to efficiently provide. Proximal optical sensing methods can fill this observational gap by providing observations of, and tracking changes in, the functional features of marine ecosystems non-invasively. Underwater hyperspectral imaging (UHI) employed in proximity to the seafloor has shown a further potential to monitor pigmentation in benthic and sympagic phototrophic organisms at small spatial scales (mm–cm) and for the identification of minerals and taxa through their finely resolved spectral signatures. Despite the increasing number of studies applying UHI, a review of its applications, capabilities, and challenges for seafloor ecosystem research is overdue. In this review, we first detail how the limited band availability inherent to standard underwater cameras has led to a data analysis “bottleneck” in seafloor ecosystem research, in part due to the widespread implementation of underwater imaging platforms (e.g., remotely operated vehicles, time-lapse stations, towed cameras) that can acquire large image datasets. We discuss how hyperspectral technology brings unique opportunities to address the known limitations of RGB cameras for surveying marine environments. The review concludes by comparing how different studies harness the capacities of hyperspectral imaging, the types of methods required to validate observations, and the current challenges for accurate and replicable UHI research.