["R&D Management, Volume 56, Issue 2, Page 338-362, March 2026. ", "\nABSTRACT\nDigital technologies change the nature of product and service development and challenge established firms to adapt to the new digital environment. As small and medium‐sized enterprises (SMEs), in particular, lack the resources necessary to digitally transform their business, they are forced to find new strategies to stay competitive in a digital economy. In this article, we propose and test a model in which SMEs collaborate with universities via joint research and/or infrastructure sharing to utilize knowledge spillover and improve their digitalization. Drawing on a quantitative survey of 435 German SMEs, we demonstrate that the managers of those firms cooperating with universities are more likely to develop digital knowledge (DK) of applications and IT management, leading to higher digitalization levels within the SMEs. Thus, we provide evidence that a particular DK base of SME managers serves as a link between university‐industry (U‐I) cooperation and an SME's digitalization. Our study not only advances research in the field by identifying U‐I cooperation as a critical success factor for digitalization activities in SMEs but also offers valuable insights for practitioners and policymakers seeking to enhance SMEs' digitalization efforts.\n"]