We analyse for the first time the CP violating ratio$\varepsilon'/\varepsilon$ in $K\to \pi\pi$ decays in leptoquark (LQ) models.Assuming a mass gap to the electroweak (EW) scale, the main mechanism for LQsto contribute to $\varepsilon'/\varepsilon$ is EW gauge-mixing of semi-leptonicinto non-leptonic operators, which we treat in the Standard Model effectivetheory (SMEFT). We perform also the one-loop decoupling for scalar LQs, findingthat in all models with both left-handed and right-handed LQ couplingsbox-diagrams generate numerically strongly enhanced EW-penguin operators$Q_{8,8'}$ already at the LQ scale. We then investigate correlations of$\varepsilon'/\varepsilon$ with rare Kaon processes ($K_L\to\pi^0\nu\bar\nu$,$K^+\to\pi^+\nu\bar\nu$, $K_L\to\pi^0\ell\bar\ell$, $K_S\to\mu\bar\mu$, $\DeltaM_K$ and $\varepsilon_K$) and find that even imposing only a moderateenhancement of $(\varepsilon'/\varepsilon)_{\rm NP} = 5 \times 10^{-4}$ toexplain the current anomaly hinted by the Dual QCD approach and RBC-UKQCDlattice QCD calculations leads to conflicts with experimental upper bounds onrare Kaon processes. They exclude all LQ models with only a single coupling asan explanation of the $\varepsilon'/\varepsilon$ anomaly and putstrong-to-serious constraints on parameter spaces of the remaining models.Future results on $K^+\to\pi^+\nu\bar\nu$ from the NA62 collaboration,$K_L\to\pi^0\nu\bar\nu$ from the KOTO experiment and $K_S\to\mu\bar\mu$ fromLHCb will even stronger exhibit the difficulty of LQ models in explaining themeasured $\varepsilon'/\varepsilon$, in case the $\varepsilon'/\varepsilon$anomaly will be confirmed by improved lattice QCD calculations. Hopefully alsoimproved measurements of $K_L\to\pi^0\ell\bar\ell$ decays will one day help inthis context.