Technological innovation is a potential source of possibilities and options, allowing savings of time and costs in organizations. It is argued that technology through knowledge, that is, of new ideas, new appliances, new methods, new techniques and new technologies have revolutionized manufacturing sector. Organizations adopt new technologies aiming to improve internal processes and, thus, to offer better services and products in the market, and remain competitive. The manufacturing industry in Kenya is a significant yet underdeveloped sector of the economy. The Kenya Vision 2030 identifies manufacturing sector as critical sector to generate jobs and long-term wealth for the Kenyan people raising its GDP contribution by at least 10% annually. However, the performance of small and medium manufacturing enterprises remains a problem with numerous small and medium manufacturing enterprises making losses, uncompetitive or closing production. The purpose of this study is to investigate the influence of technological innovation on the performance of small and medium paper and wood manufacturing firms in Kenya based on Schumpeterian theory of innovation. The study population were 437 small and medium paper and wood manufacturing firms in Kenya. Structured questionnaire was employed for data collection using two ways: drop and pick method and emailing survey. Pearson R correlation and multiple regression models were used to quantify the effect of technological innovation on performance of small and medium paper and wood manufacturing firms. It was found that technological innovation aspects such as machine aided, technical knowledge and compatibility positively and significantly influenced performance of small and medium paper and wood manufacturing firms in Kenya. To drive technological innovation in small and medium manufacturing firms, businesses should invest in automation, artificial intelligence, and the Internet of Things to improve efficiency and reduce costs. Collaborating with tech startups, research institutions, and government innovation programs for long-term competitiveness and adaptability in a rapidly evolving market.