University–industry collaboration (UIC) has become an essential mechanism for fostering innovation and transferring knowledge across institutional boundaries. It is a powerful driver for innovation and sustainable economic development. This study investigates the role of UIC in facilitating knowledge transfer and its impact on innovation outcomes within industries. The study also identifies barriers such as organizational misalignment, lack of trust, and limited funding. A conceptual model is proposed to demonstrate the dynamics of UIC. Recommendations include policy reforms, structured collaboration frameworks, and enhanced R&D investments. Drawing from both qualitative and quantitative methods, the study investigates the nature of UIC, the influencing factors, and its outcomes in terms of innovation capabilities. The findings underscore the importance of trust, absorptive capacity, and aligned goals in enhancing knowledge transfer. The study also identifies critical enablers and barriers, offering strategic insights for optimizing collaborative frameworks.