Taking enterprise network as the context of mass entrepreneurship and innovation, this study investigates the transformation mechanism of small and micro firms based on the perspective of policy supply and network embeddedness. The government policy supply and enterprise network embeddedness can effectively influence the transformation performance of small and micro enterprises. The structural embeddedness is beneficial to improve the transformation performance of small and micro enterprises, while the relational embeddedness has an inverted U-shaped relationship with the improvement of transformation performance. Financial support policies and public service policies play a moderating role in the relationship between network embeddedness and the transformation performance of small and micro enterprises. Crucially, the dynamic matching of policy supply and network embeddedness promotes the transformation process. The intertwine of government-business interactions and interfirm interaction can provide a strong "sanctuary network" for small and micro enterprises.