Psidium guajava L., commonly known as guava is an important tropical food plant with diverse medicinal values. In traditional medicine, it is used in the treatment of various diseases such as diarrhoea, diabetes, rheumatism, ulcers, malaria, cough, and bacterial infections. The aim of this review is to provide up-to-date information on the ethnomedicinal uses, bioactive compounds, and pharmacological activities of P. guajava with greater emphasis on its therapeutic potentials. The bioactive constituents extracted from P. guajava include phytochemicals (gallic acid, casuariin, catechin, chlorogenic acid, rutin, vanillic acid, quercetin, syringic acid, kaempferol, apigenin, cinnamic acid, luteolin, quercetin-3-O-α-L-arabinopyranoside, morin, ellagic acid, guaijaverin, pedunculoside, asiastic acid, ursolic acid, oleanolic acid, methyl gallate and epicatechin) and essential oils (limonene, trans-caryophyllene, α-humulene, γ-muurolene, selinene, caryophyllene oxide, bisabolol, isocaryophyllene, δ-cadinene, α-copaene, α-cedrene, β-eudesmol, α-pinene, β-pinene, β-myrcene, linalool, α-terpineol and eucalyptol). In vitro and in vivo studies demonstrated that P. guajava possesses pharmacological activities such as antidiabetic, antidiarrhoeal, hepatoprotective, anticancer, antioxidant, anti-inflammatory, antiestrogenic, and antibacterial activities which support its traditional uses. The exhibited pharmacological activities reported may be attributed to the numerous bioactive compounds present in different parts of P. guajava. Based on the beneficial effects of P. guajava as well as its bioactive constituents, it can be exploited in the development of pharmaceutical products and functional foods. However, there is a need for comprehensive studies in clinical trials to establish the safe doses and efficacy of P. guajava for the treatment of several diseases.