Digital literacy is a critical competency in education across all levels, from primary to higher education. It includes skills such as technical proficiency, information evaluation, online collaboration, creativity and ethical technology use. This study conducts a Systematic Literature Review (SLR), following Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) guidelines, to examine types of instruments used to assess students' digital literacy, the competencies targeted and the methodological challenges in their development. A total of 23 peer-reviewed articles published between 2014 and 2024 were selected from Scopus, PubMed, Crossref and ERIC. This review shows that assessment instruments include Likert scale-based questionnaires, framework-aligned tools (DigComp and DQ Framework) and digital performance-based methods. These instruments are applied across diverse educational settings: primary, secondary, tertiary and adult education with varying emphases based on age and learning context. Whilst core competencies are addressed, several limitations persist, such as reliance on self-reporting, limited cross-cultural validation and lack of authentic performance assessment. This study highlights the need for more comprehensive, validated and context-sensitive instruments that integrate digital safety, ethics and practical digital skills. The findings offer insights for researchers, educators and policymakers to improve digital literacy measurement across education sectors.