ABSTRACT This study examines the relationship between regional agglomeration and the digitalisation of manufacturing small and medium enterprises (SMEs), and how this interplay affects their productivity. Using two analytical models, we investigate the correlation of regional agglomeration factors such as industrial specialisation, related and unrelated variety, urbanisation economies and the spatial concentration of suppliers with SMEs' digitalisation level in South Korea. Our findings indicate that related variety within regional agglomerations positively influences digital innovation, facilitating knowledge spillovers particularly beneficial for SMEs with higher levels of digitalisation. The study reveals a differentiated impact of agglomeration economies on SMEs based on their digital maturity. While high-level digitalised enterprises benefit from related variety and urbanisation economies, those in the initial stages of digital adoption gain proximity to digital technology suppliers. The 2SLS models further demonstrate that digitalisation significantly enhances productivity across all levels of digital technology adoption among SMEs. This study emphasises the conditional nature of the effects of regional agglomeration on digitalisation and productivity, advocating for nuanced support strategies that cater to the varying digital maturity stages of SMEs, which are valuable for policymakers and business leaders in fostering a supportive regional ecosystem that propels SMEs towards greater productivity in the digital economy.