This　research　evaluates　the　importance　of　government　support　in　the　financial　and　environmental　performance　of　SMEs　with　the　mediating　role　of　differentiation　and　cost　leadership　strategy.　For　testing　the　model,　data　were　collected　from　315　owners/managers　of　Pakistani　SMEs　through　a　survey.　The　results　of　the　structural　equation　modeling　spectacle　that　both　financial　and　non-financial　incentives　of　government　have　a　significant　positive　influence　on　financial　performance,　environmental　performance,　differentiation　and　cost　leadership　strategy.　Differentiation　strategy　partially　mediates　the　paths　between　government　incentives　(financial　and　non-financial)　and　firms＇　performance　(financial　and　environmental).　However,　cost　leadership　strategy　fully　mediates　the　relationship　between　government　financial　incentives　and　environmental　performance,　while　it　partially　mediates　the　connection　between　government　non-financial　support　and　environmental　performance.　In　addition,　the　cost　leadership　strategy　partially　mediates　the　path　between　government　incentives　(financial　and　non-financial)　and　financial　performance.　This　research　recommends　the　government　and　policymakers　to　provide　financial　and　non-financial　incentives　to　the　industrial　sector　that　can　configure　their　competitive　advantage　and　performance.　In　turn,　these　firms　will　able　to　contribute　to　environmental　and　economic　growth.　Additionally,　firms　need　to　build　ties　with　the　government　to　get　valuable　resources　that　are　beneficial　for　competitiveness　as　well　as　environment　and　financial　performance.