Food packaging (FP) is essential for preserving food quality, safety, and extending shelf‐life. However, growing concerns about the environmental and health impacts of conventional packaging materials, particularly per‐ and polyfluoroalkyl substances (PFAS) and microplastics, are driving a major transformation in FP design. PFAS, synthetic compounds with dual hydro‐ and lipophobicity, have been widely employed in food packaging materials (FPMs) to impart desirable water and grease repellency. However, PFAS bioaccumulate in the human body and have been linked to multiple health effects, including immune system dysfunction, cancer, and developmental problems. The detection of microplastics in various FPMs has raised significant concerns regarding their potential migration into food and subsequent ingestion. This comprehensive review examines the current landscape of FPMs, their functions, and physicochemical properties to put into perspective why there is widespread use of PFAS and microplastics in FPMs. The review then addresses the challenges posed by PFAS and microplastics, emphasizing the urgent need for sustainable and bio‐based alternatives. We highlight promising advancements in sustainable and renewable materials, including plant‐derived polysaccharides, proteins, and waxes, as well as recycled and upcycled materials. The integration of these sustainable materials into active packaging systems is also examined, indicating innovations in oxygen scavengers, moisture absorbers, and antimicrobial packaging. The review concludes by identifying key research gaps and future directions, including the need for comprehensive life cycle assessments and strategies to improve scalability and cost‐effectiveness. As the FP industry evolves, a holistic approach considering environmental impact, functionality, and consumer acceptance will be crucial in developing truly sustainable packaging solutions.