Synthetic pigments/non-renewable coloring sources used normally in the textile industry release toxic substances into the environment, causing perilous ecological challenges. To be safer from such challenges of synthetic colorants, academia and industries have explored the use of natural colorants such as microbial pigments. Such explorations have created a fervent interest among textile stakeholders to undertake the dyeing of textile fabrics, especially with fungal pigments. The biodegradable and sustainable production of natural colorants from fungal sources stand as being comparatively advantageous to synthetic dyes. The prospective scope of fungal pigments has emerged in the opening of many new avenues in textile colorants for wide ranging applications. Applying the biotechnological processes, fungal pigments like carotenoids, melanins, flavins, phenazines, quinones, monascins, violacein, indigo, etc. could be extracted on an industrial scale. This review appraises the studies and applications of various fungal pigments in dyeing textile fabrics and is furthermore shedding light on the importance of toxicity testing, genetic manipulations of fungal pigments, and their future perspectives under biotechnological approaches.