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The integration of artificial intelligence (AI) into psychiatric diagnosis heralds a new era in mental health care, offering unprecedented opportunities to enhance diagnostic accuracy, personalize treatment, and streamline clinical workflows. A systematic approach was utilized, adhering to the PRISMA (Preferred Reporting Items for Systematic Reviews and Meta-Analyses) guidelines. This literature review explores the current state of AI in psychiatric diagnosis, highlighting key technologies such as machine learning, natural language processing, and deep learning. We discuss the application of these technologies across various psychiatric disorders, including depression, anxiety, and schizophrenia. While AI holds immense promise, significant challenges remain, including issues of data privacy, model bias, and the clinical validation of AI tools. Furthermore, ethical and regulatory considerations must be addressed to ensure responsible implementation. This review also examines the potential future directions of AI in psychiatry, emphasizing the importance of collaboration between AI systems and human clinicians. As the field evolves, AI has the potential to transform psychiatric practice, offering new avenues for early detection, personalized care, and therapeutic monitoring.