Many governments have problems with developing digital government services in an effective and efficient manner. One proposed solution to improve governmental digital service development is for governments to utilize agile development methods. However, there is currently a lack of understanding on two important and related topics. First, whether or not agile development might help to overcome common failure reasons of digital government projects. Second, what the challenges and success factors of agile digital government service development are. This paper addresses both of these gaps. By gathering insights from six cases where agile methods were used in the development of new digital services, it identifies five core categories of challenges and success factors encountered when utilizing agile development methods for governmental digital service development: organizational, methodological, end-user-related, technological, and regulatory. Furthermore, based on these findings, it makes initial recommendations on when and how to best use agile methods for digital government service development.