The dyeing process in the textile industry has a significant impact on the environment through excessive water use and harmful chemicals. Moving towards a circular economy offers a sustainable solution by converting waste into valuable resources that benefit both the environment and society. This study investigates the use of purple onion peel (Allium cepa), an agri-food industry by-product, as a sustainable source of bio-dye compounds for cotton and wool fabrics. The aim is to evaluate the effectiveness of this natural dye as an environmentally friendly alternative to chemical dyes, aligning with circular economy principles and agricultural waste valorization. The key focus is on an eco-friendly method of dye extraction and the colour fastness of the dyed fabrics to washing and light exposure, which are crucial factors in their lifecycle. Dyed samples exhibited colours from brownish-grey to dark brown. However, the fixation of the dye on the textile fibres showed limitations, with significant fading upon light exposure. This is a major challenge for natural dyes in the textile industry. To address this, 1,1’-carbonyldiimidazole (CDI) was tested to enhance dye-fibre affinity and prolong fixation. Various CDI amounts (5 mg, 32 mg and 50 mg) were evaluated, with 32 mg showing promising results. Wool samples showed minimal colour change after light exposure, noticeable only to experienced observers. Cotton samples showed slight colour differences after exposure to light, perceptible to general observers, but still less than samples dyed without CDI. These results suggest that natural dyes from purple onion peel are a viable alternative for the textile industry, potentially reducing reliance on environmentally harmful synthetic dyes.