Fish skin-derived gelatin has garnered significant attention recently due to its abundant availability and promising bioactive properties. This comprehensive review elucidates various intricacies concerning fish skin-derived gelatin peptides, including their preparation techniques, bioactive profiles, underlying mechanisms, and methods for stability enhancement. The review investigates diverse extraction methods and processing approaches for acquiring gelatin peptides from fish skin, emphasizing their impact on the peptide composition and functional characteristics. Furthermore, the review examines the manifold bioactivities demonstrated by fish skin-derived gelatin peptides, encompassing antioxidant, antimicrobial, anti-inflammatory, and anticancer properties, elucidating their potential roles in functional food products, pharmaceuticals, and nutraceuticals. Further, mechanistic insights into the functioning of gelatin peptides are explored, shedding light on their interactions with biological targets and pathways. Additionally, strategies aimed at improving the stability of gelatin peptides, such as encapsulation, modification, and integration into delivery systems, are discussed to extend the shelf life and preserve the bioactivity. Overall, this comprehensive review offers valuable insights into using fish skin-derived gelatin peptides as functional ingredients, providing perspectives for future research endeavors and industrial applications within food science, health, and biotechnology.