Rising atmospheric carbon dioxide (CO₂) enhances C₃ photosynthesis and often improves intrinsic water-use efficiency, yet the extent to which this physiological potential translates into durable agronomic and ecological benefits remains uncertain. This review integrates evidence from controlled environments, free-air CO₂ enrichment experiments, field studies, and modelling to evaluate the mechanisms, constraints, and applications of CO₂ fertilization. We synthesize this evidence within a cascade-filtering framework that follows carbon gain from leaf photosynthesis through whole-plant allocation, resource limitation, environmental stress, and belowground processes to realized outcomes. Three major conclusions emerge from this review. First, leaf-level photosynthetic gains are progressively attenuated by photosynthetic acclimation, source–sink limitation, nutrient shortage, and water and heat stress, so biomass and harvestable-yield responses are smaller and more variable. Second, yield gains can coincide with lower protein, iron, and zinc concentrations, making nutrient yield as important as mass yield. Third, greater carbon input belowground does not guarantee persistent soil-carbon storage because allocation, turnover, and rhizosphere priming determine retention. In controlled-environment agriculture, enrichment is most effective when CO₂ supply is coordinated with light, climate, water, nutrients, crop load, energy use, and gas delivery. Future progress requires multi-factor, multi-year, genotype-resolved studies that link physiology with nutritional quality, soil processes, modelling, life-cycle impacts, and economics.