Rapid technological growth has led to increased demand from technology-savvy citizens for their local government (LG) to offer efficient and effective digital services. Many Australian LGs are either considering taking or have taken first step towards digitally transforming their LGs. A systematic literature review was conducted to identify and analyse current knowledge about digital transformation (DT), with a focus on LGs. Evidence of a gap in the literature was found about lack of LGs' understanding of DT and approaches they take to digitally transform. Literature review indicated that customer expectations, outdated technology, and strategic directions are key drivers of DT in LGs. LGs also face challenges in adopting DT, due to lack of management support, insufficient resources, and absence of transformed LGs to benchmark against. Based on review, a holistic picture of what transformation means to LGs, challenges to achieve such transformation, and the need for further research were identified.