Smallholder farmers play a crucial role in global agricultural development. The digital transformation of smallholder agriculture can enhance productivity, increase farmers’ income, ensure food security, and promote sustainable rural development. However, existing studies often fail to analyze the holistic nature of this transformation and lack a systematic review of the relevant literature. Therefore, this study aims to provide a comprehensive presentation of the current studies on the digital transformation of smallholder agriculture through logical synthesis and reflective summarization, thereby offering valuable academic insights and practical guidance for the digital transformation of smallholder farming. This study constructs an analytical framework centered on “government–technology–smallholders” using a literature review methodology, systematically examining the main practices, challenges, and future strategies for the digital transformation of smallholder agriculture. Our review reveals that current practices primarily focus on digital agricultural production, rural e-commerce, and agricultural information exchange. We identify key challenges at the government, technical, and smallholder levels, including inadequate digital agriculture policies, limited availability of digital applications, difficulties in adapting uniform technologies to the diverse contexts of smallholders, insufficient resources and endowment among smallholder farmers, significant group disparities, and constraints imposed by social and cultural factors. To enhance the digital transformation of smallholder agriculture, it is essential to improve the supply of policy resources, increase attention to and responsiveness toward smallholder needs, and refine digital governance policies. Additionally, we must develop user-friendly digital applications that cater to the varied digital needs of farmers, reduce access costs, enhance digital literacy, foster an inclusive environment for digital agricultural development, and respect and integrate the social and cultural contexts of smallholder communities. This study deepens the understanding of digital transformation in smallholder agriculture and provides theoretical insights and practical guidance for policymakers, technology developers, and smallholder communities. It contributes to sustainable agricultural development and supports rural revitalization and shared prosperity.