Amidst a rapidly evolving business landscape, Small and Medium Enterprises (SMEs) face increasing pressure to innovate and adapt to remain competitive. However, despite the critical role of innovation in driving business growth and competitiveness, there exists a notable gap in understanding the innovation capabilities of SMEs in Mauritius. To address this gap, this paper undertakes a comprehensive exploration of the innovation landscape among Mauritian SMEs, drawing upon survey data collected from 280 SMEs across various sectors. The survey instrument, designed to capture key dimensions of innovation capability based on authoritative literature, delved into critical areas including knowledge exploitation, entrepreneurial acumen, risk management, networking proficiency, development capacity, and change management strategies. Utilizing factor analysis, the study identified four distinct factors shaping innovation capabilities within Mauritian SMEs: customer and market acquisition, radical innovation and knowledge management, risk management, and networking. These findings underscore the imperative for SMEs to embrace innovation as a strategic pathway for sustainable growth and competitive advantage. Notably, the study highlights the essential role of internalizing and leveraging external knowledge in driving innovation within organizations, fostering dynamic adaptation and resilience. By clarifying key drivers of innovation, this research offers actionable insights for policymakers, business leaders, and stakeholders seeking to cultivate a conducive innovation ecosystem in Mauritius. Ultimately, the study contributes to filling a critical knowledge gap and provides a foundation for informed decision-making aimed at enhancing innovation and driving economic prosperity in Mauritius’ SME sector.