Poor aqueous solubility remains one of the major challenges in pharmaceutical formulation development, significantly affecting the dissolution rate, absorption, and bioavailability of many therapeutic agents. Approximately 40–70% of newly discovered drug candidates exhibit poor water solubility, leading to inadequate oral bioavailability and reduced therapeutic efficacy. Among various solubility enhancement approaches, solid dispersion technology has emerged as an effective and widely accepted strategy for improving the dissolution characteristics of poorly water-soluble drugs. Solid dispersions involve the dispersion of one or more active pharmaceutical ingredients within an inert hydrophilic carrier matrix in the solid state, resulting in enhanced wettability, reduced particle size, increased porosity, and conversion of crystalline drugs into amorphous forms. Various types of solid dispersions, including eutectic mixtures, solid solutions, glass solutions, and amorphous dispersions, have been developed using carriers such as polyethylene glycol, polyvinylpyrrolidone, phospholipids, and cyclodextrins. Several preparation techniques including fusion, solvent evaporation, hot-melt extrusion, lyophilization, electrospinning, and supercritical fluid technology have been successfully employed to formulate solid dispersions. The technology has demonstrated significant potential in enhancing the bioavailability of Biopharmaceutical Classification System (BCS) Class II and IV drugs. Despite challenges related to stability, scale-up, and manufacturing, recent advancements in polymer science and processing technologies continue to expand the applicability of solid dispersions in modern drug delivery. This review highlights the principles, classifications, preparation methods, mechanisms, advantages, limitations, and recent developments in solid dispersion technology for improving the solubility and bioavailability of poorly water-soluble drugs