Adopting Artificial Intelligence (AI) in higher education presents a transformative opportunity to enhance institutional operations, improve student learning experiences, and foster innovative methods as part of digital transformation. According to the study, existing frameworks for AI adoption often lack practical applicability, sustainability considerations, and alignment with institutional goals. This study addresses these gaps by proposing a comprehensive AI Adoption Framework for higher education institutions (HEIs). The framework integrates strategic alignment, sustainability principles, and capacity building to ensure a well-rounded approach to AI-driven transformation. The study highlights the pivotal role of AI in digital transformation while acknowledging challenges such as ethical concerns, data privacy issues, and the need for enhanced AI literacy among stakeholders. The proposed framework includes key elements such as an AI-driven digital transformation strategy, foundational AI technologies, governance practices, and recommendations for building institutional AI capabilities. The study provides actionable insights and practical tools for HEIs to navigate the complexities of AI adoption. By addressing the limitations of previous frameworks and linking findings to specific institutional needs, this framework ensures responsible and effective AI implementation. The results demonstrate high satisfaction with the framework’s components, underscoring its potential to drive sustainable digital transformation and position HEIs as leaders in the AI era.