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Conventionally, in a linear economy, C&D (Construction and Demolition) waste was considered as zero value materials, and, as a result of that, most C&D waste materials ended up in landfills. In recent years, with the increase in the awareness around sustainability and resource management, various countries have started to explore new models to minimize the use of limited resources which are currently overused, mismanaged, or quickly depleting. In this regard, the implementation of CE (Circular Economy) has emerged as a potential model to minimize the negative impact of C&D wastes on the environment. However, there are some challenges hindering a full transition to CE in the construction and demolition sectors. Therefore, this review paper aims to critically scrutinize different aspects of C&D waste and how CE can be integrated into construction projects. Reviewing of the literature revealed that the barriers in the implementation of CE in C&D waste sectors fall in five main domains, namely legal, technical, social, behavioral, and economic aspects. In this context, it was found that policy and governance, permits and specifications, technological limitation, quality and performance, knowledge and information, and, finally, the costs associated with the implementation of CE model at the early stage are the main barriers. In addition to these, from the contractors’ perspective, C&D waste dismantling, segregation, and on-site sorting, transportation, and local recovery processes are the main challenges at the start point for small-scale companies. To address the abovementioned challenges, and also to minimize the ambiguity of resulting outcomes by implementing CE in C&D waste sectors, there is an urgent need to introduce a global framework and a practicable pathway to allow companies to implement such models, regardless of their scale and location. Additionally, in this paper, recommendations on the direction for areas of future studies for a reduction in the environmental impacts have been provided. To structure an effective model approach, the future direction should be more focused on dismantling practices, hazardous material handling, quality control on waste acceptance, and material recovery processes, as well as a incentivization mechanism to promote ecological, economic, and social benefits of the CE for C&D sectors.