In recent times, there has been a growing recognition of the importance of circular business models (CBM) in advancing environmental sustainability. However, the relationship between CBM and the Internet of Things (IoT) has received little attention in current academic discussions. This paper seeks to fill this gap by initially identifying four key capabilities of IoT—namely monitoring, tracking, optimization, and design evolution—using the ReSOLVE framework to enhance the performance of CBM. Subsequently, through a systematic literature review employing the PRISMA approach, the paper examines how these IoT capabilities contribute to the principles of "Reduce, Reuse, Recycle, Redesign, Remanufacture, and Recover" (the 6R) and CBM. The analysis utilizes cross-section heatmaps and relationship frameworks to elucidate the interaction between CBM and IoT. Additionally, the paper evaluates the quantitative impact of IoT on potential energy savings within CBM contexts. The findings underscore a predominant focus on assessments related to Loop and Optimize business models, where IoT significantly aids through tracking, monitoring, and optimization capabilities. However, there is a noticeable scarcity of (quantitative) case studies concerning Virtualize, Exchange, and Regenerate CBM models, indicating the necessity for further research in these domains. Notably, IoT exhibits promise in reducing energy consumption by approximately 20–30% across referenced applications in the literature. Nonetheless, challenges such as IoT hardware, software and protocol energy consumption, interoperability, security, and financial investments may hinder its wider adoption in CBM practices.