Circular dependencies in Node.js occur when two or more modules require each other, leading to unexpected behavior like incomplete module loading or errors. This happens because Node.js loads modules once and caches them, so when circular dependencies exist, the module may not fully export what it should. To fix this issue, you can refactor the code to remove the circular dependency. One method is to use dependency injection, where the dependencies are passed as arguments rather than required inside the module. Alternatively, you can split the functionality into separate modules, so that each one depends only on shared modules, avoiding direct circular imports. Tools like `madge` can help detect and visualize circular dependencies in your project. Understanding and solving circular dependencies ensures smoother module loading and improves maintainability in large codebases.