Abstract Carbon fibers (CFs) with notable comprehensive properties, such as light weight, high specific strength, and stiffness, have garnered considerable interest in both academic and industrial fields due to their diverse and advanced applications. However, the commonly utilized precursors, such as polyacrylonitrile and pitch, exhibit a lack of environmental sustainability, and their costs are heavily reliant on fluctuating petroleum prices. To meet the substantial market demand for CFs, significant efforts have been made to develop cost‐effective and sustainable CFs derived from biomass. Lignin, the most abundant polyphenolic compound in nature, is emerging as a promising precursor which is well‐suited for the production of CFs due to its renewable nature, low cost, high carbon content, and aromatic structures. Nevertheless, the majority of lignin raw materials are currently derived from pulping and biorefining industrial by‐products, which are diverse and heterogeneous in nature, restricting the industrialization of lignin‐derived CFs. This review classifies fossil‐derived and biomass‐derived CFs, starting from the sources and chemical structures of raw lignin, and outlines the preparation methods linked to the performance of lignin‐derived CFs. A comprehensive discussion is presented on the relationship between the structural characteristics of lignin, spinning preparation, and structure‐morphology‐property of lignin‐derived CFs. Additionally, the potential applications of these materials in various domains, including energy, catalysis, composites, and other advanced products, are also described with the objective of spotlighting the unique merits of lignin. Finally, the current challenges faced and future prospects for the advancement of lignin‐derived CFs are proposed.