Rapid evolution of digital innovations globally, has seen Kenyan banking sector incorporate innovation strategy in its operations. Despite these momentous advancements, the extent to which the digital innovation strategy translate into improved financial performance of commercial banks in Kenya remains uncertain. Lack of extensive empirical studies on how key variables-process, product, marketing and organizational innovation strategy relates to regulatory environment exacerbates the gap further. The study sought to assess the effect of the uptake of digital innovation strategy on the financial performance of commercial banks in Kenya, specifically on Return on Equity (ROE). The specific objectives were to assess the effect of uptake of process, investigate the effect of uptake of product, establish the effect of uptake of marketing and analyze the effect of uptake of organizational innovation strategy on financial performance of commercial banks in Kenya. Government policies moderated the relationship between the independent and dependent variables while the hypotheses were derived from the study objectives. The study was guided by Rogers’ Diffusion of Innovation Theory, the Evolutionary Theory of Economic Change, Disruptive Innovation Theory, Theory of Dynamic Capabilities and the Institutional Theory. The study adopted a positivist research philosophy. Using stratified random sampling, a sample size of 315 was used from a target population of 1470 employees derived from 38 commercial banks, with pilot test carried out in Kingdom Bank. Primary data was gathered using structured questionnaires, while secondary data on ROE was obtained from banking sector supervisory and innovation reports. Reliability was estimated using Cronbach’s Coefficient Alpha, while content validity was assessed through the Kaiser-Mayer-Olkin (KMO) measure and Bartlett’s test of sphericity. A descriptive study design was employed, and data analyzed using frequency tables, pie charts, mean, standard deviation, and bar graphs for descriptive statistics. A panel linear regression model was utilized where a simple linear regression model was used for each independent variable, followed by a joint model to determine the combined effect. The study accounted for assumptions of linearity, normality, heteroscedasticity, and multicollinearity. The study realized a significant and positive correlation (P˂0.05) between digital innovation strategy and financial performance of commercial banks in Kenya. The study reveals that process innovation strategy, which includes ideation, routine automation, and creativity leads to operational efficiency, cost saving, revenue growth and customer satisfaction. The study recommends that commercial banks enhance their talent development strategies, engage in strategic collaborations, prioritize customer centrality, and adopt agile management practices to drive financial performance. Further, banks can invest in Greentech products, innovation labs, decentralize decision-making and stay abreast of regulatory requirements to positively improve financial performance. The study contributes to the understanding of how digital innovation strategy directly affect financial performance within Kenyan banking sector. By proposing comparative studies across diverse contexts, it offers a basis for assessing the generalizability of these findings to other industries and regions.