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Gelatin is an important biopolymer that is extracted from collagen and is extensively used in the food industry because of its excellent functional properties. However, native gelatin films are moisture-sensitive and readily dissolve, swell, or split when they come in contact with water, which limits its use in food packaging. Various natural and synthetic materials are incorporated in gelatin films to improve their mechanical and thermal stability, elasticity, flexibility, and oxygen and light barrier properties. This review discusses various methods used for gelatin-based film production and modification approaches for improving their functional properties, including mechanical strength, thermal stability, water and light barrier ability, solubility and swelling, and antimicrobial properties. Moreover, gelatin-based films extend the shelf life of stored products due to their antioxidant and anti-microbial properties. The potential applications, challenges, and limitations of gelatin-based films in food packaging are also discussed. However, further research is required to prolong the modification of gelatin-based films using naturally available edible materials that are not commercially utilized. Further, studies about possible health hazards associated with the continuous use of gelatin-based packaging films should also be conducted in the future.