It is generally believed that micro enterprises have a significant employment contribution and can operate successfully in places like small towns where large and medium enterprises cannot. This however depends on the nature and performance of micro enterprises. This paper studies micro enterprises in small towns with the view of identifying their nature and performance. The study is carried in six small towns of the Amhara region on randomly selected 332 micro-enterprises belonging to different economic activities. The finding revealed that the enterprises are generally characterized by low productivity and stagnation, low level of employment and capital, limited access to financial services, lack of partnership and networking, absence of technical and business skills. To this is added the limited purchasing power of the local people, limited export and poor business environment. A multivariate analysis revealed that the most critical variables affecting the performance of micro enterprises were capital, access to information, licensing and access to telephone services. In order to promote micro-enterprises in small towns, it is therefore essential to provide them with access to finance, improve information availability, improve local business environment and promote the formalization of businesses. Moreover businesses should be encouraged to form network and associations and tap export market. Local demand should also be enhanced through improved agricultural productivity in the hinterland and increased income of town dwellers.