Virtual influencers (VIs) artificial intelligence (AI)-generated personas that mimic human influencers have emerged as a transformative force in digital marketing. This study conducts a systematic literature review (n = 51 articles) to explore the impact of virtual influencers on consumer trust, engagement, and ethical considerations across different cultural and regulatory environments. Key themes examined include the perceived authenticity of virtual influencers and its influence on trust, the ethical dilemmas surrounding transparency and consumer deception, and the effects of disclosure on engagement across various social media platforms. The findings of the study indicate that while virtual influencers have the capacity to enhance brand engagement, concerns regarding authenticity, transparency, and the uncanny valley effect influence consumer perceptions. Ethical considerations, including regulatory compliance and cultural sensitivities, further complicate their integration into marketing strategies. The Virtual Influencer Trust and Engagement Model (VITEM) is a novel framework that elucidates the relationships between authenticity, disclosure transparency, and cultural context. It shows trust to be a key mediating factor, emphasizing cultural differences in consumer responses to virtual influencers. The present study offers insights to a range of professionals, including marketers, researchers, policymakers, psychologists, and consumer wellbeing stakeholders, on the responsible leveraging of virtual influencers in an evolving digital landscape.