Distributed Software Development (DSD) is a process in which team members are located in different geographical locations and collaborate using communication and collaboration tools. DSD has gained prominence in recent years, driven by the surge in globalization, the rapid expansion of the IT outsourcing market, and the widespread accessibility of high-speed internet. However, DSD also presents numerous challenges, including team dynamics, employee well-being, HR management, communication & collaboration, requirements management, tooling & infrastructure, and development process & risk management issues. This paper aims at identifying critical challenges related to DSD. Initially, a systematic literature review was conducted to construct an initial list of 77 challenges; subsequently, a Fuzzy Delphi Method (FDM) survey was adopted to identify the critical challenges in this context. Results of the FDM indicate that, out of the 41 screened-out challenges, differences in work ethics & practices, language barriers, meeting scheduling difficulties, different time zones, burnout, physical fatigue/mental stress, and lack of opportunities for personal development are the most critical challenges of DSD. The findings of this study have implications for both practitioners and researchers related to DSD.