Preheat the oven to 425°F (220°C). If grilling, preheat the grill to medium-high heat.
Prepare the chicken and vegetables. Add the chicken, bell peppers, and red onion to a large bowl.
Season everything. Drizzle with olive oil and lime juice. Sprinkle with fajita seasoning, chili powder, garlic powder, smoked paprika, salt, and black pepper. Toss well until the chicken and vegetables are evenly coated.
Make the foil packets. Divide the mixture evenly among 4 large sheets of foil. Place the ingredients in the center of each sheet, then fold the foil tightly around the food, sealing the edges to create packets.
Bake for 22–25 minutes, or until the chicken reaches an internal temperature of 165°F (74°C) and the vegetables are tender.
Carefully open the packets. Steam will escape when opened, so use caution. Sprinkle with fresh cilantro if desired.
Serve immediately with warm tortillas, rice, avocado, sour cream, shredded cheese, or extra lime wedges.