This chapter investigates the German textile and clothing (T&C) industry's involvement in sustainability and its transition towards the Circular Economy (CE). In emphasising the complex relationship between these two concepts, this study also explores the potential role of digital technologies in facilitating this transition. While digital technologies are expected to bridge the gap between the theory and practice of the CE, existing research predominantly consists of conceptual and review studies. Here, however, this chapter focuses on German SMEs in the T&C sector, and takes a pragmatic approach, drawing on academic papers, corporate sustainability reports, and expert interviews to examine the multiple aspects of this topic. An extended action matrix and critical success factors (CSFs) emerge from the findings, offering guidance for SMEs as they confront the challenges of transitioning to sustainable and circular practices. Despite the limited current use of digital technologies, the study suggests they will have an increasing impact on T&C sector competitiveness, especially for SMEs. As sustainability initiatives align with digitalisation, companies will face growing pressure to adopt circular business practices, both from consumer expectations and impending legislative requirements, such as the EU Strategy for Sustainable and Circular Textiles. The study provides a foundation for future case studies and a basis for more in-depth research of related aspects, including market influences, consumer awareness, and strategies for sustainable industry transformation.