Small and medium enterprises (SMEs) play a critical role in economic development in Kenya, particularly within Nairobi City County, where they contribute significantly to employment creation, income generation, and innovation. However, despite their importance, many SMEs continue to experience performance challenges due to limited resources, low levels of innovation adoption, and increasing competitive pressures. This study examines the effect of innovation practices on the organizational performance of SMEs in Nairobi City County, Kenya, with a focus on four key dimensions of innovation: product innovation, process innovation, marketing innovation, and organizational innovation. The study adopts a systematic literature review and synthesis approach, drawing on recent empirical studies and theoretical perspectives including Diffusion of Innovation Theory and Dynamic Capabilities Theory. The review further integrates organizational learning capability as a mediating variable and digital technology adoption as a moderating variable in the relationship between innovation practices and organizational performance. Findings from the reviewed literature indicate that innovation practices have a significant positive effect on organizational performance by enhancing efficiency, competitiveness, and market responsiveness. Product innovation improves customer value and market share, process innovation enhances operational efficiency and cost reduction, marketing innovation strengthens customer engagement and market expansion, while organizational innovation improves adaptability and strategic alignment. The study also establishes that organizational learning capability plays a critical mediating role by enabling firms to acquire, share, and apply knowledge, thereby translating innovation practices into improved performance outcomes. Additionally, digital technology adoption moderates this relationship by strengthening the effectiveness of innovation practices through improved connectivity, automation, and data-driven decision-making. The study concludes that innovation practices alone are insufficient to guarantee improved performance unless supported by strong organizational learning capability and adequate digital technology adoption. It recommends that SMEs invest in continuous innovation, strengthen learning processes, and embrace digital transformation to enhance performance and sustainability. The findings provide valuable insights for SME managers, policymakers, and researchers seeking to promote innovation-driven growth in emerging economies.