The purpose of this research is to test the influence of the external environment on the business performance, and the mediating effect of market orientation on the relationship between the industry environment and business performance in the small and medium tourism industry. A total of 195 samples and questionnaires were used for data collection, while SMART-PLS 3.0 was used to test the hypothesis. The findings of this research show that the industry environment has a positive and significant influence on market orientation and business performance. Contrarily, market orientation has no significant influence on the business performance, as well as on the relationship between business environment and performance. This implies that the small and medium enterprises (SMEs) tourism industry enhanced their business performance by using properly its existing resources to cope with the dynamic changes of industry environment in Timor-Leste.