This study aimed to investigate the team effectiveness in small and medium-sized enterprises (SMEs) in depth, with a key focus on team atmosphere, team diversity, and team leadership. A descriptive design was used as it allows to collect data and identify potential relationships about the current state of teams, their atmosphere, diversity and leadership practices.Questionnaire was the data gathering instrument used as it offers a valuable and practical tool for gathering data. The research locale were the 10 small and medium sized enterprises from five different provinces in China and 393 managerial and non-managerial employees were used as participants of the study. Based from the results, the respondents moderately agreed that they have established team communication, trust and support and resource sharing in their company. This indicates a high level of cohesion and collaboration, which are vital for achieving team goals. There is a moderate agreement on the team's diversity as to cultural diversity, professional diversity and skills level diversity which signifies a highly positive situation with immense potential for success. The respondents agreed on team leadership skills across organizational and planning, communication, and decision-making which indicates a well-functioning team with a competent leader and a promising outlook for success. There is a high significant relationship among teamwork atmosphere, team diversity and team leadership skills. A team effectiveness framework was developed for SME's in China. This study suggest that positive teamwork atmosphere, diverse teams, and effective leadership styles in SMEs are crucial for team effectiveness. Creating a supportive and trusting environment, valuing diverse perspectives, and adapting leadership styles can all contribute to improved performance of SME's in China.