The rapid expansion of the fast fashion industry has led to a dramatic increase in textile waste, posing significant environmental and systemic challenges. Although approximately 95% of discarded clothing is technically recyclable, current recycling system remains inefficient due to fragmented collection, manual sorting, limited recycling capabilities, and a lack of integrated data management. This study investigates the structural limitations of Korea’s waste clothing recycling system and proposes optimization strategies grounded in circular economy principles. These strategies, if implemented, have the potential to significantly improve the efficiency and effectiveness of Korea’s textile waste recycling system. Through a comparative analysis of international models― including government-led Extended Producer Responsibility (EPR) systems, digital platform-based collection services, and brand-driven recycling initiatives―the study identifies key bottlenecks in Korea’s current system. The findings highlight the need for a unified and monitored collection infrastructure, the deployment of AI-based automated sorting technologies, and the development of fiber-to-fiber (F2F) recycling processes supported by standardized classification codes and centralized databases. Furthermore, the study emphasizes the importance of real-time data integration across all stages of the recycling chain to enable transparent tracking and performance evaluation. Drawing on successful PET bottle recycling cases, the research outlines a roadmap for transitioning Korea’s textile waste management to a scalable, sustainable circular economy. The study concludes by calling for robust institutional support, legal clarity, and most importantly, cross-sector collaboration. This collaboration is crucial to ensure effective implementation of EPR and long-term resource circulation, and it will require the collective efforts of environmental policymakers, waste management professionals, industry stakeholders, and researchers.