Preheat your oven to 375°F (190°C).
If using regular lasagna noodles, cook them according to package directions until al dente. Drain, rinse with cold water to stop cooking, and lay them flat on a baking sheet to prevent sticking. If using oven-ready noodles, skip this step.
Heat olive oil in a large skillet over medium-high heat. Add the Italian sausage, breaking it apart with a wooden spoon as it cooks until no longer pink, about 5-7 minutes.
Add the diced onion and bell pepper to the sausage and cook until softened, about 5 minutes.
Stir in the minced garlic, Italian seasoning, and red pepper flakes (if using). Cook for another 30 seconds until fragrant.
Add the crushed tomatoes, tomato paste, sugar, and bay leaves. Season with salt and black pepper to taste. Bring to a simmer, then reduce heat to low and cook for about 20 minutes, stirring occasionally. The sauce should thicken slightly. Remove bay leaves when done.
Meanwhile, in a mixing bowl, combine the ricotta cheese, egg, 1/4 cup of Parmesan cheese, basil, and parsley. Mix well and season with a pinch of salt and pepper.
Spread about 1 cup of the meat sauce on the bottom of your 9x13 inch baking dish.
Layer 4 lasagna noodles over the sauce, slightly overlapping them. For oven-ready noodles, make sure they don't touch the edges of the dish.
Spread 1/3 of the ricotta mixture over the noodles, followed by 1/4 of the meat sauce and 1 cup of mozzarella cheese.
Repeat these layers two more times: noodles, ricotta, meat sauce, mozzarella.
For the final layer, place the remaining 4 noodles, top with the remaining meat sauce, the last cup of mozzarella, and the remaining 1/4 cup of Parmesan.
Cover with aluminum foil, making sure it doesn't touch the cheese (tent it slightly if needed).
Bake covered for 25 minutes, then remove the foil and bake for an additional 25-30 minutes until the cheese is bubbly and golden brown.
Let the lasagna rest for 15 minutes before cutting into it. This helps it set and makes for cleaner slices.
Garnish with additional fresh basil before serving.