Word boundaries not matching when the word starts or ends with special character like square brackets

You must account for two things here:

• Special characters must be escaped with a literal \ symbol that is best done using Regex.Escape method when you have dynamic literal text passed as a variable to regex
• It is not possible to rely on word boundaries, \b, because the meaning of this construct depends on the immediate context.

What you may do is use Regex.Escape with unambiguous word boundaries (?<!\w) and (?!\w):

string input= "This is [test] version of application.";
string key = "[test]";
string stringtoFind = $@"(?<!\w){Regex.Escape(key)}(?!\w)";
Console.WriteLine(Regex.Replace(input, stringtoFind, "1.0"));

Note that if you want to replace a key string when it is enclosed with whitespaces use

string stringtoFind = $@"(?<!\S){Regex.Escape(key)}(?!\S)";
                         ^^^^^^                    ^^^^^