Cannabidiol (CBD), a non-psychoactive phytocannabinoid derived from Cannabis sativa L., has emerged as a promising multifunctional agent in dermatology and cosmetic science. The review provides an updated synthesis of CBD’s topical therapeutic potential, challenges, and evolving regulatory frameworks. CBD exhibits diverse biological effects, including anti-inflammatory, antioxidant, antibacterial, analgesic, lipostatic, antiproliferative, moisturising, and anti-ageing properties through interactions with the skin’s endocannabinoid system (ECS), modulating CB1, CB2, TRPV channels, and PPARs. Preclinical and clinical evidence support its efficacy in managing acne, psoriasis (including scalp psoriasis), atopic and seborrheic dermatitis, and allergic contact dermatitis. CBD also relieves pruritus through neuroimmune modulation and promotes wound healing in conditions such as pyoderma gangrenosum and epidermolysis bullosa. In hair disorders such as androgenetic alopecia, it aids follicular regeneration. CBD shows promise in managing skin cancers (melanoma, squamous cell carcinoma, Kaposi sarcoma) and pigmentation disorders such as melasma and vitiligo. It enhances skin rejuvenation by reducing oxidative stress and boosting collagen and hydration. However, there are challenges regarding CBD’s physicochemical stability, skin penetration, and regulatory standardisation. As consumer demand for natural, multifunctional skincare grows, further research is essential to validate its long-term safety, efficacy, and optimal formulation strategies.