Gender dysphoria [GD] or a sex and gender discord that leads to enormous psychological suffering in some variants of transgender people is a highly complex and debatable subject. Muslim culture, religious and ethical values pose more challenges to the acceptance of GD than the Western system. The purpose of this narrative review is to present and discuss GD misconceptions and contrasting Islamic views with a fresh perspective and a rational approach in light of current advancements in this field. Since there are no directives in the Holy Quran and Hadith on matters of GD, Muslims have been polarized regarding GD. The so-called “liberal scholars” corroborate the scientific fact and view GD patients as a medical condition, which necessitates contemporary therapeutic interventions. Conversely, the so-called “conservative approaches” regard GD a delusional thinking probably arising from a mental illness, or a spiritual immorality, which necessitates psychotherapy or zealous religious guidance. Due to the religious tensions, generalized unawareness, and scarcity of the quality multifaceted research, there is widespread misconceptions and hostility toward transgender people in Islamic culture. The critical appraisal of the Islamic debate on GD proves that despite its ambiguity and intricacies, GD remains a stark reality and merits resolution. Though conflicted on GD, Islamic jurists concur that Islamic laws founded on core principles of love, and respect for all dictate rational reasoning, and enlightened approach on obscure matters. Young Muslims can help reconcile GD conflict in Islamic societies by initiating intra-faith dialogues and engaging their religious scholars in clinical and patient-centered research to broaden their perspective. Collaborative efforts can prompt conservative Islamic scholars to re-negotiate their antagonistic stance on GD or SRT. Islamic leaders can also influence local governments and policy makers to develop policies to improve the welfare of long-ignored transgender people that deserve attention, empathy, and treatment on moral and religious grounds.