Vegetation-limited areas (VLAs), characterized by poor soils, water scarcity, and intense anthropogenic disturbances, pose significant challenges for ecological restoration. Owing to their multifunctional biogeochemical roles, biological soil crusts (BSCs), which are composed of symbiotic communities of algae, lichens, mosses, and microorganisms, have emerged as a pioneering solution for overcoming ecological restoration bottlenecks in VLAs. This review systematically elucidates the cascade effects through which BSCs facilitate ecosystem recovery in VLAs: initially, they initiate soil system reconstruction via physical binding, chemical weathering, and biological carbon–nitrogen fixation, significantly enhancing soil structural stability and nutrient storage capacity; subsequently, BSCs regulate evaporation-infiltration-runoff coupling to reshape hydrological balance, where their porous architecture enhances water retention and surface roughness mitigates erosive forces, creating a synergistic “water-retention and erosion-resistance” effect; finally, BSCs promote vegetation succession through seed entrapment, microhabitat engineering, and allelopathic regulation, fostering robust plant–microbe interaction networks. BSCs’ functional roles exhibit pronounced spatial heterogeneity and successional dynamics, and are modulated by climate regimes, substrate properties, and human activities. Although substantial progress has been made in understanding BSCs’ ecohydrological functions and artificial propagation technologies, challenges persist in integrating multiscale processes, evaluating long-term restoration outcomes, and decoding responses to climate change. Future research should prioritize 1) interdisciplinary integration to bridge molecular metabolism with landscape-scale ecosystem functions; 2) the development of AI-driven dynamic monitoring systems for real-time BSC classification, coverage, and health assessment; and 3) the construction of optimized restoration paradigms that merge natural succession with synthetic biology interventions for increased ecological resilience and sustainability. These efforts will advance both theoretical frameworks and practical applications of BSCs in global ecosystem restoration. Keywords: Biological soil crusts; Vegetation-limited areas; Ecological restoration; Pioneer function; Ecohydrological process regulation.