The integration of UPI into Mumbai’s financial system marks a crucial step in advancing financial inclusion. Guided by the Diffusion of Innovation (DOI) theory, this study highlights how factors like ease of use, compatibility, and awareness influence UPI adoption. Addressing challenges and expanding access will ensure inclusive digital growth. The study employed a variety of data collection instruments to effectively analyze UPI adoption and its impact on financial inclusion in Mumbai City. Structured questionnaires were used to gather quantitative data from small business owners, daily wage earners, and low-income individuals, focusing on transaction frequency, adoption challenges, and financial literacy. Semi-structured interviews with bank officials, fintech experts, and policymakers provided qualitative insights into issues such as policy implementation, trust, and security. Focus group discussions further explored user experiences and behavioral factors, while direct observations in marketplaces captured real-time digital transaction practices. This multi-instrument approach ensured a comprehensive and in-depth analysis. The study clearly establishes that UPI payments significantly contribute to financial inclusion in Mumbai City. Both Chi-square and T-test results indicate that UPI users experience a higher level of financial inclusion than non-users. Regression analysis further shows that perceived ease of use and usefulness of UPI strongly influence its adoption. However, widespread adoption is hindered by concerns such as security risks, lack of digital literacy, and poor internet infrastructure. According to the Diffusion of Innovation theory, UPI adoption is higher among early adopters and lower among the late majority and laggards. To enhance adoption and deepen financial inclusion, steps must be taken to strengthen security, improve digital literacy, ensure reliable connectivity, and expand UPI usage across sectors including public services, rural markets and international remittances.