The present study in the context of circular tourism assesses the determinants of intention and behavior of 256 small and medium-sized enterprises (SMEs) using the partial least squares structural equation modeling (PLS-SEM). Our analysis shows that attitude, subjective norms, and perceived behavioral control of decision-makers positively affect SMEs’ intention to adopt the circular economy (CE). Furthermore, SMEs’ intention, perceived behavioral control, and dynamic capabilities positively, whereas barriers negatively, affect SMEs’ behavior toward CE. The present study explicates that tourism SMEs though have positive intentions toward CE, yet most of them seem to be failing in adopting CE. This intention-behavior gap is occurring due to various contextual factors. Our analysis reveals that if dynamic capabilities are employed by tourism SMEs, then they might succeed in adopting CE, which would consequently improve not only their financial and environmental performance but also their reputation and relationship with stakeholders. The present study suggests some measures for circular tourism.