Preheat your oven to 375°F (190°C).
Cook the penne pasta according to package instructions until al dente. Drain and set aside.
In a large frying pan, heat the olive oil over medium heat. Add the Italian sausage, breaking it apart with a wooden spoon as it cooks. Cook until browned and no longer pink, about 5-7 minutes.
Add the diced bell pepper and onion to the pan. Sauté with the sausage until the vegetables are softened, about 3-4 minutes.
In a large mixing bowl, combine the cooked pasta, sausage and vegetable mixture, pizza sauce, Italian seasoning, and salt and pepper to taste. Mix until well combined.
Transfer half of the pasta mixture to the baking dish and sprinkle with one cup of mozzarella cheese and half of the pepperoni. Layer the remaining pasta mixture on top and finish with the rest of the mozzarella cheese and pepperoni.
Cover the baking dish with foil and bake in the preheated oven for 20 minutes. Remove the foil and bake for an additional 10 minutes until the cheese is bubbly and golden.
Remove from the oven and let cool for 5 minutes. Garnish with fresh basil if desired, then serve warm.