This study explores the sustainable utilization of banana peels, an often-discarded agro-waste, by extracting pectin and incorporating it as a fat replacer in cookies. Pectin, a natural polysaccharide with gelling and stabilizing properties, was extracted from banana peels using three different techniques: heat-assisted extraction, microwave-assisted extraction, and ultrasound-assisted extraction. The equivalent weight of the pectin obtained by each method was measured, the methoxy and anhydrouronic acid contents and degree of esterification were determined, and the values of pectin obtained by ultrasound methods were in the optimum range. The extracted pectin using the ultrasound-assisted method was then utilized as a partial fat replacer in the preparation of a simple three-ingredient cookie, aiming to reduce fat content while maintaining acceptable sensory and structural qualities. Various formulations were developed, and it was observed that up to 40% of the fat in the cookie recipe could be successfully replaced with banana pectin without significant differences in taste, texture, or appearance compared to the control. Sensory analysis performed by 16 panelists found that the cookies made with banana pectin were less chewy and had a better mouth feel compared to cookies made using the same percentage of commercial pectin. Texture analysis using a texture profile analyser revealed that the cookies replaced by banana pectin had a slightly higher value of hardness and fracturability, but other properties were comparable with the control. This substitution offers a promising approach to producing healthier bakery products while minimizing food processing waste. The study highlights the dual benefit of improving nutritional quality and contributing to environmental sustainability through the value-added utilization of banana peel waste. Further research can explore the long-term storage stability and consumer acceptance of such pectin-enriched, reduced-fat cookies.