Microbial pigments are gaining more attention in recent times due to their versatile applications in the pharmaceutical, food, cosmetic, and textile industries. The development of microbial pigments is a challenging task due to the presence of inexpensive synthetic dyes in the market. However, the harmful side effects of most of the azo and benzidine synthetic dyes have compelled many scientists and experts to shift their attention to chemically greener routes of dye production. Micro-organisms are endowed with the potential to produce useful natural colorants such as carotenoids on an industrial scale at relatively low costs. This review aims to provide crucial information on the biodiversity, distribution, pathogenicity, ecological and industrial applications of microbial pigments, as well as challenges and future directions for food, textile, pharmaceutical, cosmetic, and biomedical applications. It also highlights the challenges faced by the use and development of food and textile-grade pigments and proposes recommendations to deal with these challenges using advanced techniques, including metabolic engineering and gene editing technologies. •This review article provides an up-to-date knowledge regarding the biosynthesis of microbial pigments from microorganisms.•The methods to increase the yield of microbial pigment using modern-day technologies have also been reviewed in detail.•This review provides detailed information regrading the applications of microbial pigments in various industries.•This review highlights the challenges faced by the use of food and textile-grade pigments.