Ghee, a traditional form of clarified butter produced by heating and separating milk fat, has been an integral component of Indian dietary and medicinal practices for centuries. Its unique nutritional profile comprises a rich blend of bioactive lipids, including butyric acid, conjugated linoleic acid (CLA), medium-chain triglycerides (MCTs), phospholipids, and essential fat-soluble vitamins such as A, D, E, and K. These constituents collectively position ghee as a functional dietary fat with a wide range of physiological benefits beyond basic nutrition. Recent biochemical and nutritional research has highlighted the therapeutic potential of ghee in promoting gastrointestinal health, metabolic regulation, immune modulation, and cellular protection. Mechanistic insights reveal that butyric acid, a short-chain fatty acid abundant in ghee, plays a critical role in maintaining gut homeostasis. It acts as a primary energy source for colonocytes, enhances epithelial barrier integrity, and exhibits potent anti-inflammatory activity via histone deacetylase (HDAC) inhibition, which contributes to epigenetic regulation and suppression of pro-inflammatory pathways. Similarly, conjugated linoleic acid (CLA), another important component, has been associated with multiple health-promoting actions, including reduction of oxidative stress, improvement in lipid metabolism, attenuation of atherosclerotic processes, and potential anticancer effects observed in preclinical and clinical studies. In addition to its therapeutic properties, ghee provides medium-chain triglycerides that are rapidly metabolized, supporting energy balance and potentially improving insulin sensitivity. Its antioxidant constituents, including vitamin E and various phospholipids, may further protect cells from oxidative damage and support immune function. Despite these benefits, the high content of saturated fatty acids (SFAs) in ghee raises concerns, particularly for individuals with dyslipidemia, cardiovascular risks, or metabolic syndrome. Current evidence on the relationship between ghee consumption and lipid profiles remains mixed, indicating the need for individualized dietary recommendations and consideration of portion sizes, lifestyle patterns, and overall dietary composition. This review consolidates existing biochemical, preclinical, clinical, and epidemiological findings to provide a comprehensive understanding of the health impacts of ghee consumption. It critically evaluates the dual nature of ghee as both a nutrient-dense functional fat and a potential source of dietary saturated fats. By examining its mechanisms of action, population-based effects, and cultural and culinary relevance, the review emphasizes a balanced, evidence-informed perspective on incorporating ghee into modern diets. Future research should prioritize controlled human trials, dose–response assessments, and long-term metabolic studies to better define ghee’s risk–benefit profile and therapeutic potential across diverse populations.