G protein-coupled receptor 120 (GPR120), also known as free fatty acid receptor 4 (FFAR4), is a receptor for ω-3 polyunsaturated fatty acids (ω-3 PUFAs), mainly including docosahexaenoic acid (DHA) and eicosapentaenoic acid (EPA). It is widely expressed in the central nervous system on microglia, astrocytes, and neurons, where it regulates neuroinflammation and homeostasis. This review summarizes the mechanism insights and therapeutic potential of GPR120 in neurological and psychiatric disorders. Mechanistic studies indicated that GPR120 activation predominantly engages a β-arrestin2-dependent signaling pathway, which inhibits the TAK1/TAB1 complex, suppresses NF-κB and NLRP3 inflammasome pathways, and thus alleviates neuroinflammation. GPR120 signaling also regulates mitophagy and mitigates endoplasmic reticulum stress, promoting neuronal survival and function. In disease models, GPR120 activation is consistently neuroprotective, reducing seizure severity in epilepsy by inhibiting the NLRP3/caspase-1/IL-1β axis, decreasing pathological deposits in Alzheimer's disease by enhancing Aβ clearance, improving post-ischemic outcomes in stroke via anti-apoptotic and anti-inflammatory mechanisms, and improving behavior in depression models by suppressing microglial M1 polarization and restoring synaptic plasticity. Preclinical studies support the efficacy of selective GPR120 agonists (such as TUG-891, CpdA). However, clinical translation faces major challenges: differences in receptor pharmacology between humans and mice (about 82% sequence homology), weak endogenous ligands, high plasma protein binding (> 99%), and the absence of neurologically focused clinical trials. Future research should focus on addressing species differences, optimizing brain-targeted delivery strategies, and advancing translational studies from preclinical to clinical settings to evaluate the practical application value of GPR120 in central nervous system disorders.