This study scrutinizes the existing literature regarding the use of augmented reality and gamification in education to establish its theoretical basis. A systematic literature review following the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) statement was conducted. To provide complete and valid information, all types of related studies for all educational stages and subjects throughout the years were investigated. In total, 670 articles from 5 databases (Scopus, Web of Science, Google Scholar, IEEE, and ERIC) were examined. Based on the results, using augmented reality and gamification in education can yield several benefits for students, assist educators, improve the educational process, and facilitate the transition toward technology-enhanced learning when used in a student-centered manner, following proper educational approaches and strategies and taking students’ knowledge, interests, unique characteristics, and personality traits into consideration. Students demonstrated positive behavioral, attitudinal, and psychological changes and increased engagement, motivation, active participation, knowledge acquisition, focus, curiosity, interest, enjoyment, academic performance, and learning outcomes. Teachers also assessed them positively. Virtual rewards were crucial for improving learning motivation. The need to develop appropriate validation tools, design techniques, and theories was apparent. Finally, their potential to create collaborative and personalized learning experiences and to promote and enhance students’ cognitive and social–emotional development was evident.