Medical image enhancement and segmentation are critical yet challenging tasks in modern clinical practice, constrained by artifacts and complex anatomical variations. Traditional deep learning approaches often rely on complex architectures with limited interpretability. While Kolmogorov-Arnold networks offer interpretable solutions, their reliance on flattened feature representations fundamentally disrupts the intrinsic spatial structure of imaging data. To address this issue we propose a Functional Kolmogorov-Arnold Network (FunKAN) -- a novel interpretable neural framework, designed specifically for image processing, that formally generalizes the Kolmogorov-Arnold representation theorem onto functional spaces and learns inner functions using Fourier decomposition over the basis Hermite functions. We explore FunKAN on several medical image processing tasks, including Gibbs ringing suppression in magnetic resonance images, benchmarking on IXI dataset. We also propose U-FunKAN as state-of-the-art binary medical segmentation model with benchmarks on three medical datasets: BUSI (ultrasound images), GlaS (histological structures) and CVC-ClinicDB (colonoscopy videos), detecting breast cancer, glands and polyps, respectively. Experiments on those diverse datasets demonstrate that our approach outperforms other KAN-based backbones in both medical image enhancement (PSNR, TV) and segmentation (IoU, F1). Our work bridges the gap between theoretical function approximation and medical image analysis, offering a robust, interpretable solution for clinical applications.