Traditional centralized energy grids struggle to meet urban areas’ increasingly complex energy demands, necessitating the development of more sustainable and resilient energy solutions. Smart microgrids offer a decentralized approach that enhances energy efficiency, facilitates the integration of renewable energy sources, and improves urban resilience. This study follows a systematic review approach, analyzing the literature published in peer-reviewed journals, conference proceedings, and industry reports between 2011 and 2025. The research draws from academic publications of energy institutions alongside regulatory reports, examining actual smart microgrid deployments in San Diego, Barcelona, and Seoul. Additionally, this article provides real-world case studies from New York and London, showcasing successful and unsuccessful smart microgrid deployments. The Brooklyn Microgrid in New York demonstrates peer-to-peer energy trading, while London faces regulations and funding challenges in its decentralized energy systems. The paper also explores economic and policy frameworks such as public–private partnerships (PPPs), localized energy markets, and standardized regulatory models to enable microgrid adoption at scale. While PPPs provide financial and infrastructural support for microgrid deployment, they also introduce stakeholder alignment and regulatory compliance complexities. Countries like Germany and India have successfully used PPPs for smart microgrid development, leveraging low-interest loans, government incentives, and regulatory mechanisms to encourage innovation and adoption of smart microgrid technologies. In addition, the review examines new trends like the utilization of AI and quantum computing to optimize energy, peer-to-peer energy trading, and climate resilient design before outlining a future research agenda focused on cybersecurity, decarbonization, and the inclusion of new technology. Contributions include the development of a modular and scalable microgrid framework, innovative hybrid storage systems, and a performance-based policy model suited to the urban environment. These contributions help to fill the gap between what is possible today and what is needed for future sustainable urban energy systems and create the foundation for resilient cities of the next century.