Sipunculus nudus is a marine invertebrate used in medicine and as a food source. It is rich in bioactive compounds, such as polysaccharides, polypeptides, proteins, and trace elements, and exhibits multiple bioactivities that include immunomodulatory, hypoglycemic, antioxidant, antithrombotic, wound-healing promotion, and radioprotective effects. Recently, studies have been conducted worldwide on S. nudus to comprehensively explore its potential application value in biomedicine and food science. This review provides a detailed discussion on the extraction of bioactive compounds from S. nudus, their biological activities, and their application prospects in food while summarizing existing challenges and proposing directions for future research and applications. The purpose of this review is to provide a scientific basis for the use of S. nudus resources and their application in food and functional products.