One key strategy for maintaining the health of farmed fish is the incorporation of herbal essential oils as feed additives. In this work, the effects of dietary sandalwood (Santalum album L.) essential oil (SEO) were evaluated with respect to the growth and feed utilization indices, digestive enzyme activities, proximate body composition, and transcription of some intestinal and muscular genes in Nile tilapia (Oreochromis niloticus). Juvenile fish (12.60 ± 0.20 g) were randomly assigned to five treatments and fed varying levels of SEO (0, 0.5, 1.0, 2.0, and 4.0 mL/kg of diet) for 60 days. The findings indicated that dietary SEO at levels of 2.0 and 4.0 mL/kg significantly enhanced the growth performance and feed conversion ratio. Polynomial regression revealed that 3 mL SEO/kg is the optimum dietary level according to growth and feed utilization responses. The percentage of fish body protein and digestive enzyme activities were significantly increased notably in groups fed 1 mL SEO/kg or higher levels compared to the control. The expression of the muscle antioxidant genes was significantly upregulated, with downregulation of MSTN expression with SEO supplementation. A significant decrease in the caspase-3 apoptotic gene in the intestinal tissues of fish fed 0.5–4.0 mL SEO/kg diet. Furthermore, SEO enriched diets significantly down-regulated TNF-α, IL-1β, and TLR2 and up-regulated TFG-β, and IL-10 mRNA expressions in the intestinal tissue. Overall, dietary SEO at an appropriate dose of 3.0 mL/kg diet enhanced growth performance, digestive enzymes, antioxidant capacity, and immune status in Nile tilapia without inducing inflammatory response.