Significant advancements have been made in recent years in the development of highly sophisticated skin organoids. Serving as three-dimensional models that mimic human skin, these organoids have evolved into complex structures and are increasingly recognized as effective alternatives to traditional culture models and human skin due to their ability to overcome the limitations of two-dimensional systems and ethical concerns. The inherent plasticity of skin organoids allows for their construction into physiological and pathological models, enabling the study of skin development and dynamic changes. This review provides an overview of the pivotal work in the progression from 3D layered epidermis to cyst-like skin organoids with appendages. Furthermore, it highlights the latest advancements in organoid construction facilitated by state-of-the-art engineering techniques, such as 3D printing and microfluidic devices. The review also summarizes and discusses the diverse applications of skin organoids in developmental biology, disease modelling, regenerative medicine, and personalized medicine, while considering their prospects and limitations.