Although motivating electronic business (e-business) adoption and implemention by small- and medium-sized enterprises (SMEs) is endorsed by policies and initiatives introduced by the European Union (EU), a number of challenges arise as the result of a limited conceptual understanding of the relationship between SMEs and information and communication technologies (ICTs). Relatively little is known about how SMEs respond to the opportunities provided by ICTs, and even less is known about why and how small businesses use ICTs (Dixon, Thompson, & McAllister, 2002). In the first section of this critical review of the academic and government bodies of literature related to EU SMEs, e-business and policy initiatives and definitions of SMEs are explained, the unique characteristics of SMEs and entrepreneurial characteristics are outlined, and the case is made that there is a clear need for more comprehensive research on SMEs in the European Union. The second section concentrates on e-business. Many of the factors that compel organisations to adopt and implement innovation are pertinent to the adoption and implementation of e-business. These have hitherto largely been treated as separate bodies of literature, however. In this section, the benefits of e-business are explored, the factors that motivate or act as barriers to e-business adoption and implemention are outlined, and the organisational and management attributes that would seem to ensure the success of the innovation of adopting and implementing e-business are discussed. The third and penultimate section explores EU policy initiatives relevant to SMEs and to the promotion of e-business. The most wide-ranging and prominent initiatives directed at SMEs are examined here. The final section of the paper concludes with suggestions for further research.