Aqueous two-phase system (ATPS) is an exquisite liquid-liquid separation technique that relies on the mixture of two aqueous solutions. It possesses remarkable advantages, including gentle operating conditions, exceptional biocompatibility, swift and straightforward procedures, and a profound commitment to environmental preservation. In recent years, there has been a burgeoning interest in ATPS for the extraction and isolation of various compounds. ATPS has been proven to exhibit an extraordinary ability to efficiently concentrate, enrich, recover, and purify desired compounds from intricate matrices. Its triumphant applications encompass the detection of veterinary drug residues in food, the separation of precious metals and wastewater treatment. This comprehensive review provides an overarching summary of phase diagrams and various types of biphasic systems, while shedding light on the remarkable progress in ATPS application research within the realms of biomedical sciences, environmental monitoring, food safety and chemical analysis.