The collaboration of traditional handicrafts and design is a promising way forward as it conserves heritage and tradition and encourages innovation, sustainability, and economic opportunities. Collaboration brings together different skills, perspectives, and cultural elements, creating a space where traditional and innovative approaches meet. However, the discourse on handicraft and design collaboration in the context of traditional craft remains unclear. Therefore, this study aims to provide a comprehensive literature review on the current state-of-the-art on handicraft and design collaboration in the context of traditional crafts. For this study, an initial keyword search on the Web of Science database yielded a total of 30 articles after inclusion and exclusion. Further, a thematic analysis and thematic co-occurrence analysis were done for the retrieved articles. The major findings from the analysis are: (1) Collaborative Dynamics, mainly for market potential relevance and heritage preservation and (2) Collaborative Approaches evidently through knowledge transfer collaboration and design process innovation. In conclusion, this research highlights the existing scenario and lays the groundwork for further understanding and practice in this evolving field in the context of traditional crafts. This literature review focused on articles limited to one database only and acknowledges the potential for future research to explore broader aspects of the collaborative process.