Hydrothermal process is an emerging technology that contributes to sustainable production of biomass-derived chemicals, fuels, and materials. This technology uses hot compressed water to convert various biomass feedstocks including recalcitrant organic compounds in biowastes into desired solid, liquid, and gaseous products. In recent years, considerable progress has been made in the hydrothermal conversion of lignocellulosic as well as nonlignocellulosic biomass to value-added products and bioenergy to fulfill the principles of circular economy. However, it is important to assess hydrothermal processes in terms of their capabilities and limitations from different sustainability aspects so that further advances can be made toward improvement of their technical maturity and commercialization potential. The key aims of this comprehensive review are to (a) explain the inherent properties of biomass feedstocks and physio-chemical characteristics of their bioproducts, (b) elucidate related transformation pathways, (c) clarify the role of hydrothermal process for biomass conversion, (d) evaluate the capability of hydrothermal treatment coupled with other technologies for producing novel chemicals, fuels and materials, (e) explore different sustainability assessments of hydrothermal processes for potential large-scale applications, and (f) offer our perspectives to facilitate the transition from a primarily petro-based to an alternative biobased society in the context of changing climate.