Regulators are faced with many challenges surrounding health data usage, including privacy, fragmentation, validity, and generalizability, especially in the European Union (EU), for which synthetic data may provide innovative solutions. Synthetic data, defined as data artificially generated rather than captured in the real world, are increasingly being used for healthcare research purposes as a proxy to real‐world data (RWD). Currently, there are barriers particularly challenging in Europe, where sharing patient's data is strictly regulated, costly, and time consuming, causing delays in evidence generation and regulatory approvals. Recent initiatives are encouraging the use of synthetic data in regulatory decision‐making and health technology assessment to overcome these challenges, but synthetic data have still to overcome realistic obstacles before their adoption by researchers and regulators in Europe. Thus, the emerging use of RWD and synthetic data by pharmaceutical and medical device industries calls regulatory bodies to provide a framework for proper evidence generation and informed regulatory decision‐making. As the provision of data becomes more ubiquitous in scientific research, so will innovations in artificial intelligence, machine learning, and generation of synthetic data, making the exploration and intricacies of this topic all the more important and timely.In this review, we discuss the potential merits and challenges of synthetic data in the context of decision‐making in the European regulatory environment. We explore the current uses of synthetic data and ongoing initiatives, the value of synthetic data for regulatory purposes, and realistic barriers to the adoption of synthetic data in healthcare.