Preheat the oven to 375°F (190°C).
In a mixing bowl, combine the olive oil, chili powder, cumin, garlic powder, onion powder, smoked paprika, salt, and black pepper. Mix well to create a marinade.
Add the chicken breasts into the bowl with the marinade and coat them thoroughly. Let it marinate for about 10 minutes.
While the chicken is marinating, slice the red and green bell peppers and the onion.
In the prepared baking dish, spread the sliced onions and bell peppers evenly.
Place the marinated chicken breasts on top of the vegetables.
Bake in the preheated oven for about 20 minutes.
After 20 minutes, remove the dish from the oven and spread the sour cream evenly over the chicken. Then sprinkle the shredded cheddar cheese on top.
Return the dish to the oven and bake for an additional 10 minutes, or until the chicken is fully cooked (165°F/74°C internal temperature) and the cheese is melted and bubbly.
Once done, remove from the oven and let it rest for a few minutes. Garnish with fresh cilantro, if desired.
Serve hot and enjoy your Cheesy Baked Fajita Chicken with rice, tortillas, or a side salad.