In a medium skillet, heat the olive oil over medium heat. Add the diced onion and bell pepper, and sauté for about 5 minutes until softened.
In a large mixing bowl, combine the softened cream cheese, shredded cheddar cheese, shredded Monterey Jack cheese, drained diced tomatoes, sautéed onion and bell pepper, garlic powder, smoked paprika, cumin, cayenne pepper (if using), and salt and pepper. Mix until well combined.
Transfer the mixture to a baking dish or a cast-iron skillet.
Preheat your oven to 350°F. Bake the queso dip for 20-25 minutes, or until the cheese is melted and bubbly.
Remove from the oven and let it cool for a few minutes before serving. Serve warm with tortilla chips, crackers, or fresh vegetables.