Preheat oven to 375°F. Spray a 9x13-inch baking dish with nonstick cooking spray and set aside.
Cut chicken breasts into thin strips about half an inch wide. Combine fajita seasoning, garlic powder, cumin, smoked paprika, salt, and black pepper in a small bowl. Toss the chicken strips in the seasoning blend until evenly coated.
Heat olive oil in a large skillet over medium-high heat. Add the seasoned chicken strips and cook for 3 to 4 minutes per side until lightly browned. Work in batches to avoid crowding. Remove chicken to a plate and set aside.
In the same skillet over medium heat, add the sliced bell peppers and onions. Cook for 4 to 5 minutes, stirring occasionally, until softened and slightly caramelized on the edges.
In a large mixing bowl, stir together the softened cream cheese, cream of chicken soup, sour cream, and salsa until smooth and fully combined with no lumps remaining.
Add the seared chicken strips and sautéed peppers and onions to the cream cheese mixture. Stir to combine. Fold in one cup of the shredded cheese blend.
Pour the mixture into the prepared baking dish and spread into an even layer. Sprinkle the remaining one cup of shredded cheese evenly over the top.
Cover with aluminum foil and bake at 375°F for 20 minutes. Remove the foil and bake for another 10 minutes until the cheese is fully melted, bubbly, and lightly golden on top.
Remove from the oven and let the casserole rest for 5 minutes before serving.