The demand for safe and environmentally friendly food packaging is rising, leading to the growing popularity of paper-based biodegradable food packaging materials. Applying biopolymer coatings and reinforcing bioactive compounds into the packaging-grade paper matrix will enhance the physical, mechanical, and barrier properties of paper. Traditional paper coating methods, solution casting, and dip coating methods are improved with innovative spray coating methods, electrospinning, and bar coating methods. Biopolymers starch, cellulose, protein, and wax are widely used for paper coating, enhancing paper properties and showing the potential to replace current synthetic coating materials. Incorporating active materials in paper with innovative coating methods produces active paper-based packaging material that helps protect food from harmful pathogens. This review highlights the innovative strategies to improve the physical and functional properties of paper and their application in food packaging. Also, this article emphasizes paper-based smart packaging material for indicating the quality of food products.