Creating a circular economy for packaging is a key objective of industry and policymakers in the European Union. To achieve this, the sorting and recycling processes for packaging waste need to be optimized. The Digital Watermarks Initiative HolyGrail 2.0, driven by AIM—European Brands Association and powered by the Alliance to End Plastic Waste, aims to contribute to making this a reality. To assess the technical and economic viability of the digital watermarks technology for a more granular sorting of packaging waste, more than 120 companies and organizations from the complete packaging value chain have joined forces. The technology has the potential to revolutionize the way packaging is sorted today, resulting in higher-quality recycling rates in the EU, to drive a truly circular economy. The project is divided into three phases: (1) development of prototype detection unit, (2) semi-industrial trials, and (3) industrial trials.