An important aspect of economic growth in any nation is the entrepreneurs who promote change and initiate development activities. The study investigated the relationship between entrepreneurial knowledge and the performance of Small Medium Enterprises (SMEs) in Iten town in Elgeyo Marakwet County, Kenya. Based on the study, this paper examines the effect of entrepreneurial innovation on the performance of small and medium enterprises. The study was guided by Schumpeter’s Theory of Innovation. It adopted a correlational research design and targeted 783 SMEs operating in Iten town. The research also sampled 143 respondents using Nassiuma’s (2000) model. Stratified simple random sampling technique was employed to select a sample representative of the total population. The main tool used for collecting data was a questionnaire. The collected data were analysed using both descriptive and inferential statistics. Pearson correlation was computed to establish the association between the study variables. Pearson correlation findings indicate a strong positive association between innovation and SME performance (r=0.702). Multiple regression analysis was computed to test the hypotheses to determine the relationship between dependent and independent variables. The findings of the study revealed that innovation (β=0.205, p<0.05) had a significant effect on SME performance. It is recommended that managerial training programmes should be promoted in the country by key stakeholders working in the SME sector. Further, the Government should intervene in providing training centres that will give entrepreneurial training to the SME owners.