This study analyses the state-of-the-art application of Life Cycle Assessment (LCA) in the production and recycling of rare earth elements (REEs), highlighting its strategic role in promoting sustainability across resource-intensive sectors. A systematic literature review (SLR) was conducted in accordance with PRISMA guidelines using the Scopus database. A total of 78 peer-reviewed studies were included, with no time restrictions applied. The review focused on studies applying LCA to REE production from both primary and secondary sources, particularly those integrating emerging digital technologies such as artificial intelligence, big data, and process simulations. Studies lacking LCA methodology or not specifically addressing REEs were excluded. The findings show that LCA, when enhanced by digital tools, serves as a key enabler for making industrial processes more sustainable by improving traceability, reducing environmental impacts, and supporting responsible decision making along the value chain. Recycling from secondary sources such as electronic waste emerges as a practical solution to reduce dependency on primary resources and to promote circular models. In particular, recycling has been shown to reduce environmental impacts by 64–96%, underscoring its effectiveness in mitigating the ecological footprint of REE production. The innovative contribution of this study lies in demonstrating how the integration of LCA and digital technologies can accelerate the transition toward more sustainable, resilient, and transparent rare earth value chains.