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Simple Summary: Positive welfare represents an expansion of the traditional animal welfare understanding that animal welfare is defined by minimizing negative experiences such as stress, pain, suffering, and disease. Positive welfare as a concept shifts the narrative from just reducing negative experiences to intentionally providing animals with increased opportunities to have positive experiences and feelings. The concept, although around for several decades, is in its infancy in terms of developing ways of assessing positive welfare on farms. Therefore, the adoption of practices that promote opportunities for positive welfare and experiences faces challenges, especially in monitoring continuous improvement at the farm level. The most apparent challenge is the lack of validated indicators to characterize a full spectrum of positive welfare experiences and feelings for farm animals. Assessing positive welfare in extensively reared animals such as sheep may pose additional practical challenges too. Using an iterative approach, this critical review aims to explore the extent to which positive welfare interventions and indicators are positioned and have been developed within the literature on sheep welfare. This paper critiques existing literature in terms of potential indicators for current and future research and characterizes the practicality and suitability of these indicators for on-farm welfare assessments. Finally, potential aspects of positive welfare for sheep are highlighted so that they may guide future research and practical implementation on farms. The concept of positive welfare is an expansion of the traditional understanding that animal welfare is defined by minimizing stress, pain, suffering, and disease. Positive welfare shifts the animal welfare narrative from a focus on reducing negative experiences to proactively providing animals with opportunities to have positive experiences and feelings. The concept, although around for several decades, is in its infancy in terms of developing ways of assessing positive welfare on farms, especially in extensive systems, and there are challenges in the adoption of positive welfare practices and the monitoring of continuous improvement at the farm level. Using an iterative approach, this critical review aims to explore the extent to which positive welfare interventions and indicators are positioned and have been developed within the animal welfare literature for sheep. This paper critiques existing positive welfare indicators, such as choices in food and the physical environment, conspecific social synchronization, maternal bonds, intergenerational knowledge transfer, positive human–animal relationships, etc., as currently assessed by the 'good life framework'. It also reviews the characteristics of scientific measures for (positive) affective states in the current sheep literature and their potential contribution to understanding positive welfare states in sheep. In conclusion, this paper provides recommendations for future research regarding sheep welfare. [ABSTRACT FROM AUTHOR]