The study examined the relationship between digital literacy and the performance of small and medium-sized electronic enterprises (SMEs) in Kampala District, Uganda. A cross-sectional correlational research design was adopted, and a mixed-methods approach was employed to collect both quantitative and qualitative data. The study population consisted of SME owners, employees, digital strategy implementers, customers, and technology providers, totaling 136 respondents selected using a combination of stratified, simple random, and purposive sampling techniques. Data were collected through structured questionnaires, interviews, and document reviews and analyzed using SPSS. Results revealed a strong positive relationship between digital literacy and SME performance, with a Pearson correlation coefficient of r = 0.772 and a significance level of p < 0.05. This indicated that higher levels of digital literacy among employees and management were associated with improved enterprise performance, including enhanced sales, customer satisfaction, profitability, and operational efficiency. The study concluded that fostering digital literacy was critical for improving SME performance and recommended targeted digital skills training programs for employees and managers.