Unreal Engine 5 (UE5) is the latest iteration of Unreal Engine, developed by Epic Games. It was revealed in May 2020 and officially released in April 2022. Unreal Engine 5 includes multiple upgrades and new features, including Nanite, a system that automatically adjusts the level of detail of meshes, and Lumen, a dynamic global illumination and reflections system that leverages software as well as hardware accelerated ray tracing.

Unreal Engine 5 was revealed on May 13, 2020, supporting all existing systems that could run Unreal Engine 4, including the PlayStation 5 and Xbox Series X/S. It was released in early access on May 26, 2021, and formally launched for developers on April 5, 2022.

Epic Games worked with Sony to optimize Unreal Engine 5 for the PlayStation 5. To demonstrate the ease of use of the engine, both companies collaborated on a demo called "Lumen in the Land of Nanite" for the PlayStation 5 which featured a photorealistic cave setting that could be explored by players. The demo was showcased during the May 2020 reveal of the engine, and leveraged Nanite, Lumen, and assets from the Quixel library. Epic also affirmed that the Xbox Series X/S would fully support Unreal Engine 5.

Epic has used its game Fortnite as a testbed for Unreal Engine 5. The game was updated to use Unreal Engine 5 in December 2021. Briefly after, Epic released The Matrix Awakens, a promotional game demo for the 2021 movie The Matrix Resurrections, to showcase Unreal Engine 5 and other technology (such as MetaHuman Creator).

Unreal Engine 5 was made available to download in April 2022. It included a redesigned Unreal Editor with new animation and modelling tools. Some of the first major titles making full use of the new engine were released in 2023, including the Layers of Fear remake, Remnant 2 and Immortals of Aveum.

A major feature of Unreal Engine 5 is Nanite, a virtualized geometry system that allows developers to use photogrammetry and other high-detail meshes in their games without significant performance impact. Traditionally, artists had to create multiple models for different levels of detail (LoDs) and generate normal maps for finer details. Nanite automatically manages LoDs by scaling models dynamically based on draw distance, screen resolution, and performance requirements. It utilizes a hierarchical structure, allowing different parts of a single mesh to render at varying levels of detail. Nanite is compatible with many 3D model formats, including ZBrush sculpts and CAD models, enabling developers to directly import film-quality assets without manual optimization. According to Epic Games' Brian Karis, one of the significant innovations in Nanite is its ability to stitch edges between different automatically generated LoDs seamlessly, ensuring that no cracks appear at boundaries. In its initial release, Nanite was only compatible with static meshes.

Unreal Engine 5 takes advantage of the high-speed solid-state storage in next-generation hardware in order to stream assets into memory as they are needed. Epic Games CEO Tim Sweeney emphasized that this storage speed allows developers to "bring in [a game's] geometry and display it despite it not all fitting in memory," eliminating traditional loading screens and enabling seamless transitions between varying levels of detail as objects move closer to the player. Additionally, UE5 provides a way to divide large maps into smaller partitions called "World Partition," which decreases the amount of the level needed to be loaded.

Lumen is a dynamic ray traced global illumination and reflections system that can react in real-time to scene and lighting changes. It eliminates the need for precomputed lightmaps for a given scene and enables automatic adjustments to light, reflections, and shadows. Lumen supports both software and hardware ray tracing. The software ray tracing option, which uses Mesh Distance Fields, is optimized for a broad range of devices and enables fast ray intersections at the cost of lower fidelity. Hardware ray tracing offers higher accuracy and supports additional geometry types, including skinned meshes. Lumen also incorporates a Surface Cache system that reduces the computational overhead required to evaluate lighting. When Lumen is disabled, the engine defaults to Signed Distance Field Ambient Occlusion for a lower-fidelity lighting solution.