Adeno‐associated virus (AAV)‐based therapies are recognized as one of the most potent next‐generation treatments for inherited and genetic diseases. However, several biological and technological aspects of AAV vectors remain a critical issue for their widespread clinical application. Among them, the limited capacity of the AAV genome significantly hinders the development of AAV‐based gene therapy. In this context, genetically modified transgenes compatible with AAV are opening up new opportunities for unlimited gene therapies for many genetic disorders. Recent advances in de novo protein design and remodelling are paving the way for new, more efficient and targeted gene therapeutics. Using computational and genetic tools, AAV expression cassette and transgenic DNA can be split, miniaturized, shuffled or created from scratch to mediate efficient gene transfer into targeted cells. In this review, we highlight recent advances in AAV‐based gene therapy with a focus on its use in translational research. We summarize recent research and development in gene therapy, with an emphasis on large transgenes (>4.8 kb) and optimizing strategies applied by biomedical companies in the research pipeline. We critically discuss the prospects for AAV‐based treatment and some emerging challenges. We anticipate that the continued development of novel computational tools will lead to rapid advances in basic gene therapy research and translational studies.