The textile industry includes SMEs, which play an important role worldwide in the economy and society. However, their activities can contribute to some environmental issues, like climate change, and resource scarcity, which are lately at the center of attention. Due to increasing pressure from governments and society regarding sustainability issues, textile SMEs need to become sustainable, and one solution to achieve sustainability is transitioning towards circularity in production. Nevertheless, textile SMEs encounter numerous challenges and enablers on their journey towards circularity, particularly in areas like production systems where knowledge remains insufficient. Thus, this paper aims to identify the challenges and enablers faced by textile SMEs in transitioning towards circular production systems. This study is based on a literature study, workshops, and interviews with Swedish textile SMEs. The results show that textile SMEs encounter seven challenges towards circular production systems, including a lack of knowledge and awareness, limited resources, limited access to technology, complexity of input and finished product, a lack of proper regulations and strategy, a lack of collaboration among stakeholders, and a lack of interest and support from stakeholders and customers. In contrast, education, collaboration, supportive regulations, and circular production system design can be considered as enablers for their transition.