The aqueous extract of dry onion skin waste from the ‘Dorata di Parma’ cultivar was tested as a new source of biomolecules for the production of colored and biofunctional wool yarns, through environmentally friendly dyeing procedures. Specific attention was paid to the antioxidant and UV protection properties of the resulting textiles. On the basis of spectrophotometric and mass spectrometry analyses, the obtained deep red-brown color was assigned to quercetin and its glycoside derivatives. The Folin–Ciocalteu method revealed good phenol uptakes on the wool fiber (higher than 27% for the textile after the first dyeing cycle), with respect to the original total content estimated in the water extract (78.50 ± 2.49 mg equivalent gallic acid/g onion skin). The manufactured materials showed remarkable antioxidant activity and ability to protect human skin against lipid peroxidation following UV radiation: 7.65 ± 1.43 (FRAP assay) and 13.60 (ORAC assay) mg equivalent trolox/g textile; lipid peroxidation inhibition up to 89.37%. This photoprotective and antioxidant activity were therefore ascribed to the polyphenol pool contained in the outer dried gold skins of onion. It is worth noting that citofluorimetric analysis demonstrated that the aqueous extract does not have a significative influence on cell viability, neither is capable of inducing a proapoptotic effect.