The category of edible plant oils with additional health and sustainable benefits is growing steadily. However, this category still represents a relatively small market segment known as ‘niche oils’. Oils derived from byproducts, especially seeds, are considered as functional foods due to their properties. However, to increase their usage, it is necessary to examine their sensory acceptability among consumers. The results of this research demonstrate that cold-pressed sweet pepper seed oil (Capsicum annuum L.), from the Podravka and Slavonka cultivars, is acceptable to consumers as an ingredient in meal preparation and in various processed food products, due to its favorable organoleptic and physicochemical characteristics. The quality of oil is highly dependent on the quick manipulation of pepper seeds. Pepper seeds, that have been dried for a shorter time, yield oil that has a higher smoke point (230 °C), which makes it suitable even for frying food. Aroma profile analysis revealed that cold-pressed sweet pepper seed oil is rich in terpene trans-β-ocimene (40%), as dominant component. Trans-β-ocimene plays a crucial role in the plant’s protective mechanisms their during growth and development. Consequently, sweet pepper seed oil represents a potential natural resource for isolating this terpene to be used as a biopesticide. Notably, this innovative oil is entirely produced from byproducts (seeds) and thus it provides an additional benefit for consumers who seek to contribute to the sustainability of our planet through their dietary choices. Therefore, this oil holds significant potential for closing the loop in the circular bioeconomy.