Abstract: The rapid development of the electric vehicle and electrochemical energy storage sectors has created an urgent need for sustainable resource management in the lithium-ion battery sector, thereby drawing widespread attention to the recycling of spent lithium iron phosphate (LFP) batteries. Hydrometallurgy has become the mainstream recovery method due to its high metal recovery rate, low energy consumption, and high product purity. However, traditional processes are often associated with multi-step operations, high reagent consumption, and complex wastewater management, posing economic and environmental challenges that hinder large-scale industrial application. Therefore, a systematic review is necessary to integrate recent achievements and critically evaluate the recovery pathways of LFP batteries. This review comprehensively investigates the hydrometallurgical recovery processes of spent LFP batteries. First, pretreatment techniques are compared and analyzed, including discharging, mechanical crushing, and thermal or chemical treatment methods aimed at separating active materials from current collectors. A detailed analysis of various leaching systems follows, including inorganic acids, organic acids, bioleaching, and deep eutectic solvents (DESs), with a comparison of their mechanisms and efficiencies. Subsequently, methods for impurity removal and product purification are evaluated. Finally, material regeneration pathways are discussed, including the solid-state and hydrothermal synthesis of recovered iron phosphate and its upcycling into high-voltage lithium manganese iron phosphate (LMFP). This analysis highlights the trade-offs between different approaches. Specifically, inorganic acid leaching, especially using sulfuric acid, offers high efficiency but raises environmental concerns. Organic acid leaching and bioleaching are more environmentally friendly and exhibit higher lithium selectivity, though they often face challenges such as high reagent costs, slow reaction rates, or sensitivity to pulp density. DESs offer an innovative and tunable platform for selective metal dissolution, though issues of high viscosity and scalability remain. For separation, synergistic solvent extraction systems demonstrate impressive Fe/Li separation factors, while precise pH control is essential to minimize Fe loss during Al removal. The regeneration of cathode materials from purified solutions has proven feasible, with regenerated LFP exhibiting excellent electrochemical performance. Notably, upcycling LFP into materials with higher voltage and energy density enhances the economic viability of the recycling process. While hydrometallurgy effectively recovers valuable metals from spent LFP batteries, its industrialization is constrained by economic and environmental barriers related to process complexity, chemical consumption, and waste management. The future of sustainable LFP recycling lies in integrated innovations: developing short-process, closed-loop flowsheets; designing intelligent, adaptive leaching systems with minimal chemical input; and prioritizing upcycling strategies that directly convert waste into high-performance cathode materials. This transition from simple recovery to high-value regeneration is vital for establishing an economically viable and environmentally friendly circular economy for LFP batteries.