In an era of environmental awareness, the construction industry faces pressure to adopt resouurce-efficient practices that reduce waste, extend material lifespans, and support climate change mitigation. While the environmental benefits of multi-storey wood buildings (MWBs) are well recognized, understanding and evaluating circular economy (CE) applications in this context remains limited. This study explores CE strategies for MWBs, examines circularity indicators, tools and methods for evaluating CE, and identifies challenges hindering the application of CE in MWB construction through a systematic literature review. Following the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) protocols, a structured search was conducted in the Web of Science and Scopus databases using relevant keywords. A total of 34 relevant studies were selected from an initial list of 347 studies. The results indicate that key CE strategies were increasingly implemented at the early-stage of MWBs. However, limited CE implementation exist at the end-of-life stage of MWBs. Key challenges to CE MWB construction include risk-averse approach of designers and engineers, the lack of standardized data and methodologies for end-of-life assessment, insufficient conceptualization and categorization of CE principles due to limited knowledge and education, and limitations in current life cycle assessment methods. The study highlights significant limitations in circularity indicators and evaluation methods, emphasizing the need for further research to advance CE integration in MWBs. By systematically synthesizing the state-of-the art research on CE practices in MWBs, this study presents a framework that highlights key challenges, knowledge gaps, and research priority areas for advancing circularity in MWBs.