Henna (Lawsonia inermis) has been traditionally used as a natural hair dye for centuries, offering a safe and eco-friendly alternative to chemical-based dyes. The increasing concerns regarding the adverse effects of synthetic hair dyes—such as skin irritation, allergic dermatitis, and potential carcinogenicity—have renewed interest in plant-based formulations. This review critically evaluates the phytochemistry, formulation strategies, validation, and safety aspects of henna hair dye. The active dyeing principle, lawsone (2-hydroxy-1,4-naphthoquinone), binds irreversibly to hair keratin, imparting an orange-red to brown shade. Modern approaches include combining henna with herbal adjuncts (indigo, amla, hibiscus) to improve shade diversity and consumer acceptability. Validation studies underscore the importance of standardized physicochemical evaluation, phytochemical profiling, stability testing, and safety assessment. Comparative analysis reveals henna is safer than synthetic dyes, though limitations exist in shade range and long-term stability. Regulatory guidelines for herbal cosmetics remain fragmented, with insufficient global harmonization. Future research should focus on advanced formulations, nanotechnology-based delivery systems, and clinical validation to establish henna as a standardized, globally accepted hair dye.