Background Seaweeds are a large and diverse group of photosynthetic macro-algae found across the world's oceans. There is a growing recognition that they are important sources of bioactive compounds with a variety of biological activities that could potentially contribute to functional food and nutraceutical industries. Scope and approach The complex structure and distinctive components of seaweed cell walls, which differ significantly from terrestrial plants, presents a major challenge for the effective extraction of bioactive compounds from inside the cells. Enzyme technologies have been used to improve the extraction, hydrolysis, and structure modification efficiently with a high degree of environmental sustainability. This review critically analyses the advances, challenges, and future directions in applying enzyme technologies to improve the extraction and processing of bioactive compounds from seaweeds and their potential applications in functional foods and nutraceuticals. Key findings and conclusions Different enzymatic processes have been demonstrated to (1) assist the extraction by breaking down the seaweed cell walls, and (2) degrade or hydrolyse macromolecules including polysaccharides and proteins. These enzymatic processes improve the yield and recovery of bioactive compounds and enhance their biological properties with regard to prebiotic, antioxidant, ACE inhibitory, anti-inflammatory, and antiviral effects. Seaweed-derived bioactive compounds from these processes present significant new opportunities in developing novel food applications. The current food regulations and safety requirements for seaweeds and their products are addressed for commercial product development.