Despite the rapid global push toward digital transformation, digital entrepreneurship (DE) adoption among Malaysian SMEs remains surprisingly low. This digital gap is a pressing concern, given that SMEs form the backbone of Malaysia's economy and must adapt to stay competitive in an increasingly digital world. To better understand this challenge, this study investigates the key factors influencing DE adoption through the lens of the Technology-Organisation-Environment (TOE) framework. Using a cross-sectional, quantitative approach, responses from 307 SME owners and managers across various sectors were analysed. The research employed SPSS and PLS-SEM to test hypotheses and explore the relationships between TOE constructs and the adoption of digital entrepreneurship. The results reveal that technological factors, specifically relative advantage, compatibility, and complexity along with employee knowledge and competitive pressure, significantly impact DE adoption. Interestingly, organization size and government support did not play a significant role. These findings suggest that internal readiness and external market dynamics are more influential than structural size or policy initiatives in driving digital uptake. This study contributes novel empirical insights into the relatively underexplored area of DE adoption within the Malaysian SME landscape. Its implications are far-reaching: it provides policymakers with evidence to design more effective digital support initiatives, helps scholars refine digital transformation theories, and equips SME leaders with understanding needed to harness digital tools for sustainable growth. By shedding light on why adoption remains sluggish, this study lays a critical foundation for accelerating digital entrepreneurship across Malaysia’s vibrant SME sector.