Among the various natural polymers, polysaccharides are one of the oldest biopolymers present on the Earth. They play a very crucial role in the survival of both animals and plants. Due to the presence of hydroxyl functional groups in most of the polysaccharides, it is easy to prepare their chemical derivatives. Several polysaccharide derivatives are widely used in a number of industrial applications. The polysaccharides such as cellulose, starch, chitosan, etc., have several applications but due to some distinguished characteristic properties, seaweed polysaccharides are preferred in a number of applications. This review covers published literature on the seaweed polysaccharides, their origin, and extraction from seaweeds, application, and chemical modification. Derivatization of the polysaccharides to impart new functionalities by chemical modification such as esterification, amidation, amination, C-N bond formation, sulphation, acetylation, phosphorylation, and graft copolymerization is discussed. The suitability of extraction of seaweed polysaccharides such as agar, carrageenan, and alginate using ionic solvent systems from a sustainability point of view and future prospects for efficient extraction and functionalization of seaweed polysaccharides is also included in this review article.