Dragon fruit, also known as pitaya, is highly nutritious and each part of the fruit viz., peel, pulp, and seeds are rich in polyphenols, flavonoids, antioxidants, sugars, dietary fiber, vitamins, and minerals. The combination of antioxidants, vitamins, and fiber makes dragon fruit a valuable addition to a balanced diet. It can potentially be used in antidiabetic, anticancerous, and nutraceutical preparations. Dragon fruit is also a rich source of betalain, oligosaccharides, fats with a high proportion of essential fatty acids, and pigments like β-carotene and lycopene. Owing to its phytochemical and nutraceutical potential dragon fruit can play a promising role in developing functional food and value-added products. Betalains are the principal phytochemicals in dragon fruits that consist of betacyanins and betaxanthins. The prebiotic principle in dragon fruits is oligosaccharides, which stimulate the growth of beneficial gut microbiota, viz., Bifidobacterium and Faecalibacterium; improve the immune system by increasing immunoglobulin A and G; preventing intestinal diseases like colon cancer. The seeds are rich in essential fatty acids principally omega-3 and omega-6 and tocopherols with a potential for utilization in nutraceutical preparations. Dragon fruit extract can also be used to prepare fermented beverages and naturally carbonated probiotic drinks. The phytochemicals in the various extracts including betalains, flavonoids, and phenolics can be encapsulated for targeted delivery. The current study is a comprehensive review of the nutritional and bioactive potential, and health benefits of dragon fruits exploring its possible functional food applications and value-added products.