Industry 5.0 has further implications for taking sustainability forward by linking up with the circular economy as a valuable avenue to advance and reinvigorate circular practices within manufacturing and supply contexts. Industry 5.0 deals with the integration of humans and advanced intelligent machines with the help of intelligent technologies like AI, robotics, and blockchain. Applying it to the circular economy where reduction in resource use, recycling, and reuse matters, Industry 5.0 can catalyze the changes. This paper identifies Industry 5.0 as the solution to current disruptions such as smart manufacturing, digital twins, and a transparent supply chain. For instance, the circular economy popularized in the European Union through a circular economy action plan and Japan’s smart factories where these technological advancements have enhanced recycling, wastage, and resource utilization. However, downside risks involving the increased implementation costs, system integration problems, and absence of uniform international standards remain an issue and repercussions are felt most severely in the developing nations. About these challenges, this study suggests policy intervention in the form of technology development endorsement through tax credit schemes and public-private partnerships alongside availing a development program to increase the literacy levels of workers in circular economy models. In the long run, therefore, Industry 5.0 presents a potential way forward for a more sustainable economy globally although the process’s challenges cannot be ignored.