This research examined the critical interplay between competitive advantage and the sustainability of firm performance in Small and Medium Enterprises (SMEs) of Oromia Regional State, Ethiopia. The study adopted a mixed-methods approach, incorporating both primary and secondary data sources, and employed a descriptive and explanatory research design. A self-administered Likert-scale questionnaire was employed to collect data from the targeted respondents. Stratified and simple random sampling techniques, coupled with Daniel Soper's sample size calculation formula, were utilized to gather data from 387 employees of SMEs, setting the foundation for a robust analysis. The core objective of this research was to investigate the relationship between competitive advantage and the sustainability of firm performance within the SME sector. The findings, derived through structural equation modeling, indicated a positive correlation between competitive advantage and the sustainability of firm performance. In light of the dynamic business environment, the results underscored the pivotal role of cultivating and enhancing competitive advantage for SMEs striving to achieve sustainability. As the global business landscape continues to evolve, SMEs in Oromia Regional State are expected to be encouraged to focus on strategically developing and leveraging competitive advantages. This research contributes valuable insights that could guide SME leaders or owners, policymakers, and stakeholders in making informed decisions to foster sustainability and resilience in dynamic market conditions. Ultimately, the study advocated for a proactive approach to cultivating competitive advantage as a cornerstone for the enduring success of SMEs in Oromia and beyond.