Most prior public sector digital transformation (DT) research has examined the role of digitalization in improving either the internal operational efficiency of the government or the quality of government service delivery to external stakeholders such as citizens and businesses. Although policy-driven digitalization of specific sectors is key for promoting public value, government’s role in orchestrating extra-government digitalization initiatives to create public value has not been sufficiently investigated. To address this perceptible void in the public sector DT literature, we study a government-led DT program designed to promote digitalization among microbusinesses (MB), a sector that has major economic and social implications. Given the significant role of technical and business knowledge in facilitating enterprise DT, we examine and theorize different knowledge mechanisms through which government policy initiatives can help foster MBs’ DT. Drawing on qualitative data from a series of structured interviews and focus groups with government agents, digital champions, and MB owner-managers involved in the implementation of a government-led DT program for MBs in Ireland, among the different DT stakeholders, we identify three knowledge pathways playing different knowledge-related roles and aiming to facilitate this transformation: top-down, bottom-up, and multidirectional. Each pathway comprises distinct practices. Collectively, the identified knowledge mechanisms in the DT program knowledge ecosystem foster social value creation for both MBs and government stakeholders, and therefore for the nation as a whole. Specifically, sustenance of the DT program is achieved through “initiation” and “instantiation” knowledge routes. Our findings offer theoretical contributions to the literatures on government-led digital transformations, effectiveness of government-led digital initiatives, and digital transformation in the MB sector. Our study also has significant implications for policy and practice.