This study, “effect of government policy on small business development in Nigeria” examined the various government policies namely taxation, access to finance, regulatory policies, infrastructure and business support policies were considered. The survey research approach was used, which is a quantitative method. The study utilized the registered small business owners/managers who were selected using stratified random sampling technique from 320 small business owners/managers in the selected states of Nigeria. The main data collection tool used was structured questionnaire while descriptive statistics was used to analyze the data and Pearson Product Moment Correlation used at the 5% significance level was adopted. The results indicated that government policies are significant factors on the growth of small business (r = 0.641, p < 0.001). Financing schemes and supportive measures by the government proved effective in improving business expansion, job creation and profitability. Multiple taxation, inconsistent policy implementation and poor infrastructure, on the other hand, hampered the performance of businesses. 68.4 per cent of the respondents cited inconsistent policy implementation as the biggest challenge and 61.9 per cent said that improved credit access provided a boost to operational performance. It is concluded in the study that sustainable small business growth and development in Nigeria, as well as the competitiveness and overall economic development is heavily dependent on the implementation of transparent, stable and effective government policies.