Immersive technology is rapidly emerging as a powerful tool for enhancing the digital transformation in transportation to deal with the complexity, high cost, and uncertainty in the dynamic traffic environment. In this study, we investigate the innovations induced by immersive technologies for transportation fields. The literature (153 articles) published over the past five years were collected and analyzed systematically, pertaining to the lifecycle model of the product-service system, i.e., design, development, evaluation, and applications. The review indicated that immersive systems and scenarios have been developed and applied in various transportation areas, such as air traffic management, autonomous vehicles, railways, highways, and vehicle maintenance. Additionally, the review indicated that immersive technology brings significant benefits to the transportation field and induces significant changes in the interactions between humans and the physical world. These changes are expected to induce digital transformation in several aspects, e.g., digital testbeds for theoretical models and algorithms, immersive and safe digital environments for user studies, and digital training. Based on the review, a novel framework and conceptual lifecycle model of developing immersive technology-enabled digital transformation in transportation is proposed, a novel evaluation matrix for measuring the immersive experience level is established. The results provide essential references for practitioners to apply immersive technology and guidance regarding potential future research directions.