The global focus on ever-changing economic environments and their impact on entrepreneurship has highlighted the need for more supportive entrepreneurial environments. Business firms have increasingly focused on strengthening entrepreneurial activity in pursuit of favourable entrepreneurial outcomes and regional development. As a result, the focus has shifted towards quality-driven entrepreneurship to create a conducive environment that facilitates firms&rsquo expansion and growth to attain superior business performance. Also, small and medium enterprises (SMEs) growth is accompanied by the maturation of an entrepreneurial ecosystem, mainly driven by an interconnected system of each component. This study builds on the premise that entrepreneurial ecosystems are pivotal frameworks that provide platforms for nurturing innovation and business growth. SMEs emerge as crucial drivers of economic development, and understanding the mechanisms through which the entrepreneurial ecosystem influences their performance is imperative. In today's competitive business environment, particularly the changing landscape of markets and technologies, SMEs face challenges in transitioning into sustainable businesses in the long run. As digital technologies reshape industries, integrating dynamic capabilities into entrepreneurial ecosystems has become important for enduring competitive advantage. Despite the growing understanding of ecosystem mechanisms, dynamic capabilities, and digital transformation interactions to foster firm performance, their combined interactions still need to be explored. This study will explore the nuanced interplay between the entrepreneurial ecosystem, dynamic capability, digital transformation, and firm performance. To achieve the study&rsquos objective, our sample will be primarily based on the BSE Smallcap index listed manufacturing sector firms. The present study will use MCDM approaches to identify and prioritise key factors and subfactors within the entrepreneurial ecosystem. Furthermore, it will use SPSS, AMOS, and SmartPLS to test the conceptual model and examine the relationships between elements. Moreover, this study will help generate practical recommendations for policymakers, entrepreneurs, and business leaders to design targeted strategies and policies to foster a conducive entrepreneurial ecosystem, develop dynamic capabilities, and effectively embrace digital transformation to improve business performance.