This work extends the characteristic-based volume penalization method, originally developed and demonstrated for compressible subsonic viscous flows in (J. Comput. Phys. 262, 2014), to a hyperbolic system of partial differential equations involving complex domains with moving boundaries. The proposed methodology is shown to be Galilean-invariant and can be used to impose either homogeneous or inhomogeneous Dirichlet, Neumann, and Robin type boundary conditions on immersed boundaries. Both integrated and non-integrated variables can be treated in a systematic manner that parallels the prescription of exact boundary conditions with the approximation error rigorously controlled through an a priori penalization parameter. The proposed approach is well suited for use with adaptive mesh refinement, which allows adequate resolution of the geometry without over-resolving flow structures and minimizing the number of grid points inside the solid obstacle. The extended Galilean-invariant characteristic-based volume penalization method, while being generally applicable to both compressible Navier–Stokes and Euler equations across all speed regimes, is demonstrated for a number of supersonic benchmark flows around both stationary and moving obstacles of arbitrary shape.