The packaging industry ensures that products are safe, minimizing waste while extending shelf life. Bio-based smart packaging has the potential to achieve both sustainability and real-time monitoring of food quality, resulting in environmental and health benefits. Smart packaging that integrates interactive technologies to extend the shelf life of perishable foods has been the subject of increasing research. Traditional packaging potentially contributes to environmental pollution and littering due to its limited biodegradability. Consequently, there is a rising demand for sustainable alternatives. The demand is driven by changing consumer expectations, product complexity, and attitudes toward sustainability. Therefore, this review examines the general principles, mechanisms, and prospects of sustainable smart packaging materials, such as wood-based, protein-based, and microbial-based polymers. In this account, the significance of bio-based smart packaging in the food industry is emphasized by describing the various scientific operating principles that such novel indicators are based on, such as pH and gas indicators, biosensors, Time-Temperature indicators (TTI), and gas sensors; all focused at improving food product quality and safety. Compared to conventional fossil-based packaging materials, most bio-based smart packaging offers similar functionality. These latest-developed materials improve the safety, effectiveness, and sustainability of packaged food distribution and consumption. Therefore, this review can serve as a valuable resource for researchers, manufacturers, and consumers in reducing environmental impact and promoting sustainable food packaging practices.