This paper examines how Artificial Intelligence (AI) is transforming Business Process Outsourcing (BPO) operations in Sri Lanka. The BPO sector is a key contributor to Sri Lanka’s service economy, and recent advances in AI are transforming how BPO operations are performed. This study evaluates the impact of AI-based automation on operational efficiency, workforce dynamics, and service quality in Sri Lanka’s BPO industry. The research adopts a mixed-method approach, combining data from few BPO firms with qualitative insights from their web sites and publications. Key AI technologies examined include Robotic Process Automation (RPA), machine learning, and natural language processing applied to customer support, data processing, and back-office operations. The findings indicate that AI adoption significantly improves process speed, accuracy, and cost efficiency, while also reshaping workforce roles through task reallocation and increased demand for digital and analytical skills. Although concerns related to job displacement exist, the results suggest a shift toward human– AI collaboration rather than full workforce replacement. Furthermore, AI-enabled systems contribute to improved service quality and customer satisfaction through faster response times and consistent service delivery. The study provides practical insights for BPO organizations and policymakers to support sustainable AI integration while balancing productivity gains and workforce development in Sri Lanka’s BPO sector.