Augmented Reality (AR) and Virtual Reality (VR) technologies, when integrated with Internet of Things (IoT)-enabled autonomous vehicle (AV) systems, present significant prospects to enhance safety, precision in testing, and the overall user experience in autonomous driving. As autonomous vehicle systems progress, the creation of highly interactive and immersive environments is essential for cultivating user trust and engagement, providing drivers and passengers with real-time information and a thorough comprehension of autonomous vehicle operations. This paper investigates recent breakthroughs in AR/VR applications in AV systems, stressing their effects on driver and passenger interaction, rigorous system testing, and multi-sensory input, thus permitting more realistic and effective simulation scenarios. Through an extensive literature assessment, we identify significant breakthroughs in the field and highlight existing technological shortcomings and challenges, particularly in real-time data processing and immersive feedback systems. We offer a new paradigm that merges AR/VR with AV technologies to promote user immersion, enhance safety, and optimize data processing. Major potential benefits of the proposed approach, such as less latency, increased data flow, increased hazard awareness, and increased passenger comfort and trust, may emerge from such projected findings. Findings such as these serve to justify the role that AR/VR technologies will play in creating user-centered approaches for the design of autonomous vehicle supporting breakthroughs widely projected to significantly impact the immediate future of safe, efficient, and user-friendly autonomous driving systems.