This paper includes a research review in five bibliographic databases on using the application of virtual reality (VR) and augmented reality (AR) in physical and occupational therapy (POT). This literature review addresses five research questions and two sub‐research questions. A total of 36 relevant studies were selected in the review based on the defined keywords and inclusion‐exclusion criteria. The primary motivation for using the application of VR and AR in POT is that it is accurate, involves higher patient participation, and requires less therapy recovery time. The standard software tool used is the Unity 3D game engine, and the common device used is the Oculus Rift HMD. Various applications of VR and AR consist of different VR environments and AR contents used in POT. Post‐stroke rehabilitation, rehabilitation exercises, pain management, mental and behavioral disorders, and autism in children are the main aspects addressed through the VR and AR environments. Literature review indicates that questionnaires, interviews, and observation are the primary metrics for measuring therapy's effectiveness. The study's findings show positive results such as reduced treatment time, nervousness, pain, hospitalization period, making therapy enjoyable and encouraging, improved quality of life, and focus on using the application of VR and AR in POT. This review will be relevant to researchers, VR and AR application designers, doctors, and patients using the application of VR and AR in POT. Further research addressing multiple participants with clinical trials, adding new VR environments and AR content in VR and AR applications, including follow‐up sessions, and increasing training sessions while using the application of VR and AR in POT are recommended.