Nitrogen-based crop fertilizers are the most important industrial chemicals supporting the global food supply. Plasma-water-based nitrogen fixation (PWBNF) provides a clean, sustainable, and flexible alternative, which is amenable for decentralized, small-to-medium-scale production systems. This process is based on the targeted activation of N2 or air molecules by plasmas. Plasma can interact with water molecules, water droplets, and water layers through the plasma physical and chemical mechanisms. This review summarizes the current state of the art of PWBNF and provides insights into the effective mechanisms for the synthesis of NH3, NO2− and NO3− in highly reactive plasma environments. The opportunities and challenges for this plasma-enabled approach are identified to guide the development of sustainable nitrogen fixation technology.