Artificial Intelligence (AI) has become widely accepted in diverse fields and applications in the fast-paced development of technology. It has even penetrated the threshold of education. This chapter will tackle the potential benefits of utilizing AI-powered gamification and interactive learning tools and lay down approaches to attaining a responsible approach to AI Integration. It will also explore interactive learning tools teachers can employ in the classroom and determine the impact of AI-powered gamification on peer engagement. By this, some drawbacks of using AI in education will be revealed to avoid frustration in coping with its mechanisms. Further, it will also provide virtual and augmented reality applications for a clearer view of how these devices work. This chapter will uncover the psychology of gamification to realize the underlying mental implications of this pedagogy for students.