The fashion sector, recognized for its resource-intensive methods, is currently encountering pressing sustainability issues due to its substantial dependence on natural resources, extensive utilization of chemicals, and exploitation of labor within its supply chain, thus giving rise to notable environmental and ethical apprehensions. In the Industry 4.0 era, which emphasizes the integration of new production technologies to enhance working conditions, productivity, and production facility quality, the fashion sector has discovered opportunities to tackle sustainability challenges by adopting technology for transitioning to circular, greener, and digital systems with reduced environmental impact. Despite promising prospects, the opportunities provided by this paradigm are yet to be fully realized. In this context, design is crucial in enhancing digitally driven production processes for fashion companies within this framework. To explore this, the study suggests an iterative approach to recognizing challenges and opportunities, concentrating on the current alignment with technological advancements. A design-focused strategy aims to devise a comprehensive approach to fashion sustainability and circular economy (CE) principles within the Industry 4.0 framework. The aim is to establish an innovative laboratory model that aids fashion companies in effectively managing the sustainable and digital transition. The study offers insights into potential research opportunities to accelerate the Industry 4.0 transformation in the fashion sector. It envisages a more positive, sustainable, and responsible future by establishing a Circular Fashion-Tech Lab, integrating innovative technologies for sustainable and circular practices in the fashion industry.