Abstract: Since the beginning of the 21st century, significant challenges concerning China’s arable land resources have emerged. These include widespread soil quality degradation, prevalence of medium-to-low-yield fields, and instances of soil contamination in certain regions. These multifaceted issues pose a substantial threat to agricultural productivity, environmental sustainability, and food security. Concurrently, this period witnessed a dramatic surge in the demand for soil amendments designed to counteract degradation, specialized pollutant passivators for mitigating contamination risks, and commercial organic fertilizers for enhancing soil organic matter. Against this backdrop, functional fertilizers–products engineered to deliver benefits beyond basic nutrient supply–have emerged as pivotal innovations within the fertilizer industry. This sector exhibits a rapid development momentum, presenting significant new opportunities for the evolution of fertilizer technologies and markets. The core paradigm for the future development of functional fertilizers in China is centered around a “trinity approach” integrating: enhanced nutrient use efficiency to minimize losses and environmental impact, environmental compatibility ensuring a minimal ecological footprint, and improved crop stress resilience and yield enhancement under suboptimal conditions. Achieving this integrated vision requires profound interdisciplinary convergence. Future advancements will depend on leveraging cutting-edge research and innovation across diverse fields, including biotechnology (harnessing plant growth-promoting rhizobacteria, mycorrhizal fungi, and microbial consortia for nutrient solubilization and stress mitigation), materials science (developing novel controlled/slow-release coatings, nanocomposites, and sorbent materials), and smart agriculture (integrating sensors, data analytics, and precision application technologies). This comprehensive study systematically synthesizes the developmental trajectory of the functional fertilizer industry in China. It provides a detailed analysis of the primary categories of functional fertilizers that are currently available or under development. Furthermore, it critically examines the key research priorities and emerging technological directions shaping the field. This study aims to offer robust scientific guidance and strategic insights by consolidating this knowledge. Ultimately, the successful development and deployment of these advanced products is crucial for safeguarding national food and agricultural product security, ensuring ecological safety, and underpinning the transition toward green agricultural development in China.