This paper examines the pivotal role of Generative AI in revolutionizing Virtual Reality (VR) and Augmented Reality (AR) technologies. By harnessing advanced machine learning models, these immersive technologies are enhanced to offer more realistic, dynamic, and personalized user experiences. This work explores how Generative AI facilitates the creation of complex virtual environments, adaptive content, and intuitive user interfaces that significantly increase user engagement across various domains such as gaming, education, and professional training. Additionally, the integration of AI with other technologies like haptic feedback and neural interfaces is explored, highlighting their potential to further deepen user immersion and interaction. The paper also addresses critical ethical and practical considerations, including privacy concerns, the impact of AI-generated content on reality perception, and the mental health implications of prolonged exposure to virtual environments. These discussions underscore the need for robust regulatory frameworks and ethical guidelines to ensure the responsible deployment of these technologies. Through a comprehensive analysis of current trends and future directions, this paper emphasizes the importance of ongoing research and development in the ethical use of Generative AI in VR and AR. It calls for a balanced approach to innovation and regulation, advocating for collaborative efforts to harness the transformative potential of these technologies responsibly and effectively.