The shift to sustainability and the circular economy (CE) in the construction industry is essential for reducing its environmental impact, especially in resource-intensive industries such as buildings. Prefabrication, especially modular construction, is gaining popularity in Germany because of its benefits, which include reduced on-site waste production and quicker assembly. It is supported by strong EU and national policies, such as the Circular Economy Act and the EU Circular Economy Action Plan. Studies on the practical implementation of the principles of the circular economy (CE) and the 10R model in the context of German modular construction are particularly scarce. However, emerging studies from other countries, such as Australia, have begun to explore these areas more extensively in recent years. The proposed systematic literature review (SLR) will be used to synthesize the available academic literature, industry reports, and case studies published between 2015 and 2025 to determine the most critical challenges and approaches related to the implementation of the 10R framework in modular construction. In accordance with PRISMA, extensive searches will be performed via Scopus, Web of Science, and German-specific databases, including the BMU reports. The literature retrieved will be subjected to thematic analysis to categorize the findings based on short-, medium-, and long-loop circular applications so that the operationalization of the principles of the circular economy in the modular construction environment can be structured. This study aims to address gaps in the existing literature to identify the barriers to integrating policy, technical, and industry awareness and suggest strategies for integrating them, including the design for disassembly (DfD), collaboration among stakeholders, and tracking materials with digital tools. Finally, it adds to both theory and practice by informing policy developments based on the National Circular Economy Strategy of Germany, capacity building, and future empirical research as a basis for facilitating the transformative adoption of CE in modular construction.