While the conservation of resources is crucial for small and medium enterprises, scholarly evidence suggests that the overexploitation of resources by small and medium enterprises hinders the development of resilience. Small and medium enterprises are responsible for a high proportion of global pollution, prompting an increasing call for scholarly attention on small and medium enterprises’ transition towards ‘circularity.’ Yet, it is still unclear how circular practices could be strategically used to build organizational resilience. There is a lack of clarity on the potential contribution of digital capabilities while pursuing a transition toward circularity and building organizational resilience. We address the gap through qualitative analysis of the experiences of 53 senior and middle managers from small and medium enterprises engaged in circular practices. The thematic analysis demonstrates that resources derived from knowledge management practices assist SMEs in sensing new opportunities linked to circularity. Particularly, the role of digitalization is crucial to facilitate knowledge acquisition and knowledge sharing and build resilience. Our exploratory study explains how digital capabilities assist in developing organizational capabilities in the form of pollution control, stewardship, sustainability, and regeneration strategies. Our findings are intended for academia and policymakers in understanding the role of resource efficiency and stewardship in small and medium enterprises. By applying the natural resource-based view as a theoretical lens, we explain the linkage between effective resource utilization, cost reduction, and enhanced resilience.