This research investigates the relationship between workforce diversity and the sustainability of Small and Medium Enterprises (SMEs) in Southwest Nigeria. Utilizing a quantitative approach, data was collected through an electronic survey questionnaire distributed to 435 employees from randomly selected SMEs. The findings reveal that gender diversity and ethnic diversity significantly impact SME sustainability, while age diversity showed no significant effect. Specifically, gender diversity and ethnic diversity were found to be associated with enhanced employee retention, highlighting the critical role of creating inclusive work environments that leverage the unique perspectives and experiences of a diverse workforce. These results have important implications for SMEs in Southwest Nigeria, underscoring the need to adopt diversity and inclusion policies and invest in education and training to harness the potential of a diverse workforce for long-term success. The study's findings provide a compelling argument for SMEs to actively embrace and promote diversity as a strategic imperative for sustainability. By implementing tailored diversity and inclusion policies, investing in education and training, and targeting a diverse pool of candidates, SMEs can create an environment that fosters innovation, problem-solving, and employee satisfaction, ultimately positioning them for long-term viability in a competitive business landscape. Additionally, policymakers should consider initiatives to support diversity and inclusion in SMEs to further enhance the economic and social impact of these enterprises in Southwest Nigeria