This review provides a comprehensive analysis of recent advancements in the regeneration and genetic transformation of Capsicum species, focusing on overcoming the challenges posed by biotic and abiotic stresses. It critically examines optimized regeneration protocols, including explant selection, media composition, and plant growth regulators, while highlighting innovations such as light-emitting diodes, nanoparticle applications, and the integration of artificial intelligence to improve in vitro regeneration efficiency. The review also addresses the challenges in genetic transformation, summarizing strategies that have been applied to enhance pathogen resistance and tolerance to environmental stresses like drought, salinity, and extreme temperatures in Capsicum species. By integrating contemporary research, this review highlights the need for sustainable biotechnological solutions to improve Capsicum cultivation, enhance crop resistance, and enhance agricultural productivity.