Sustainability through a circular economy using artificial intelligence within the context of Industry 5.0 is therefore a viable line of development. Industry 5.0 focuses on the placement of people alongside smart technology to work together and best fit circular economy guidelines, including waste reduction, better resource utilization, and recycling. This study also explores whether AI has a role in making linear industries circular by offering cutting-edge technological applications for waste and resource management, as well as supply chain traceability utilizing predictive modelling, self-acting sorting, and digital replicas. The research methodology of the study is done after reviewing high-quality research reviews and articles to draw evidence from existing literature and case studies to establish the use of AI in the circular economy to overcome these challenges. Further, the absence of clear legislation to address the use of AI in circular models hinders the advancement of circular economy applications, particularly in developing nations that have poor technological environments. To overcome these challenges, this study proposes a behavioural systems approach. Finally, outlining the state-of-the-art advancements of AI, the paper appeals to industries, policymakers, and communities for cooperation to realize AI’s potential and pursue the Industry 5.0 goals for developing a sustainable and resilient economy worldwide.