The study investigates the impact of psychological capital on the employees’ innovative behavior through the mediating effect of employees’ job satisfaction and employees’ innovative intention in the small and medium enterprises (SMEs) sector of Saudi Arabia. A sample of 204 respondents participated from various enterprises working without restricting specific sectors to check employees’ common behavior in multiple sectors. The data and hypotheses testing analysis were made with the partial least squares–based structural equation modeling (PLS-SEM). The study revealed that psychological capital positively affects employees’ job satisfaction, innovative behavior, and innovative intention. Furthermore, the employees’ job satisfaction also positively correlated with the employees’ innovative behavior, while there was no connection between the employees’ innovative intention and the employees’ innovative behavior. Concerning the indirect relationships, the findings revealed that employees’ job satisfaction played a partial mediating role between psychological capital and the employees’ innovative behavior. However, the employees’ innovative intention did not mediate the relationship between the psychological capital and the employees’ innovative behavior. These findings suggest the importance of psychological capital in influencing the innovative behavior of employees. Hence, there is a need to continue developing it among employees to ensure a better output.