Using structural equation modelling on 291 small and medium enterprises in Australia, we examine the impact of knowledge transfers from supply chain actors on innovation and firm performance and how knowledge quality influences these relationships. We find that knowledge transfers from customers and suppliers are positively related to innovativeness, which has a significant influence on firm performance. The results also show that knowledge transfers from suppliers (only) influence knowledge quality, and knowledge transfer from suppliers, in turn, has an indirect effect on innovation through knowledge quality. Thus, the results underscore the importance of knowledge transfers from suppliers to knowledge quality and knowledge transfers from suppliers through knowledge quality for achieving innovation. The results also underline the need to distinguish knowledge transfers from specific actors, in order to understand the influence of knowledge quality on external knowledge transfers and innovation, adding to research into the conditions under which external knowledge transfers contribute to innovation and firm performance.