The purpose of this study is to design a policy model for the creation and development of digital entrepreneurship based on competitive advantage and innovation in knowledge-based businesses. From the perspective of its objective, the research is applied, and in terms of methodology, it is quantitative and descriptive–correlational. The statistical population consisted of 1,740 employees and managers of knowledge-based companies in Kerman in 2024, of whom 560 individuals were selected through simple random sampling. The data collection instrument was a researcher-developed questionnaire. Quantitative data were analyzed using structural equation modeling (SEM) with SPSS and AMOS software.The findings indicated that the proposed model for establishing and developing digital entrepreneurship based on competitive advantage and innovation in knowledge-based companies has an acceptable level of fit. Competitive advantage and innovation exert direct effects on the creation and development of digital entrepreneurship. The components of competitive advantage—including technical expertise and knowledge, branding, service quality, high standards, responsiveness, organizational agility, after-sales support, supply chain management, and superior efficiency—significantly influence the creation and development of digital entrepreneurship in knowledge-based companies. Collectively, the competitive advantage components explain 0.358 of the variance in the creation and development of digital entrepreneurship.