<PAGE>
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                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                --------------

                                  Form 10-K/A

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934

For The Fiscal Year Ended September 30, 2000

                                     OR

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934

                         Commission File No. 000-26283

         For the transition period from ____________ to _____________

                             DIGITAL ISLAND, INC.

            (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                                    <C>
               Delaware                              68-0322824
   (State or other jurisdiction of                (I.R.S. Employer
    incorporation of organization)              Identification No.)

    45 Fremont Street, 12th Floor                      94105
      San Francisco, California                      (Zip Code)
   (Address of principal executive
               offices)
</TABLE>

      Registrant's telephone number, including area code: (415) 738-4100
       Securities registered pursuant to Section 12(b) of the Act: None
          Securities registered pursuant to Section 12(g) of the Act:
                        Common Stock, $0.001 par value

   Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the Registrant
was required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days.

Yes [X] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference to Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $380 million as of November 28, 2000, based upon
the closing price of the Registrant's Common Stock on the Nasdaq National Market
reported for November 28, 2000. Shares of Common Stock held by each executive
officer and director and by each person who beneficially owns more than 5% of
the outstanding Common Stock have been excluded in that such persons may under
certain circumstances be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination of affiliate
status for any other purpose.

79,781,332 shares of the Registrant's $0.001 par value Common Stock were
outstanding at November 28, 2000.

                     DOCUMENTS INCORPORATED BY REFERENCE

The following documents (or portions thereof) are incorporated by reference
into the Parts of this Form 10-K noted:

None.

PORTIONS AMENDED

   The Registrant previously anticipated incorporating by reference from the
definitive proxy statement for the Registrant's 2001 Annual Meeting of
Stockholders to be filed with the Commission pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this Form.
However, pursuant to Instruction G(3) to the Report on Form 10-K, the
Registrant hereby amends Part III (Items 10, 11, 12 and 13) contained in the
Registrant's Report on Form 10-K for the fiscal year ended September 30, 2000,
to provide the additional information relating to the directors and executive
officers of Registrant, executive compensation, security ownership and certain
relationships and related transactions, as set forth below.

   Except as set forth in Items 10, 11, 12 and 13 below, no other changes are
made to the Registrant's Report on Form 10-K for the fiscal year ended
September 30, 2000.

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<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Executive Officers and Directors

   The following table sets forth certain information regarding our executive
officers and directors as of January 16, 2001.

<TABLE>
<CAPTION>
         Name                 Age                            Position
         ----                 ---                            --------
<S>                           <C>   <C>
Ruann F. Ernst(3)(5).......   54    Chief Executive Officer and Chairman of the Board of Directors
T.L. Thompson..............   54    Chief Financial Officer
Charles Picasso............   59    Chief Operating Officer
Chris Albinson.............   33    Chief Strategy Officer
Howard Lasky...............   48    Vice President, General Counsel and Secretary
Tim Wilson.................   41    Chief Marketing Officer
Charlie Bass(2)............   58    Director
Christos Cotsakos(2).......   52    Director
Marcelo A.Gumucio(1)(4)....   63    Director
G. Bradford Jones(1)(3)....   45    Director
Shahan Soghikian(1)(3)(4)..   42    Director
</TABLE>
--------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Finance Committee
(4) Member of Nominating Committee
(5) Member of Special Stock Option Committee

   Ruann F. Ernst.  Ms. Ernst has served as Chairman of the Board since December
1999 and as Chief Executive Officer and as a director since June 1998. Prior to
joining Digital Island, Ms. Ernst served with Hewlett Packard, a computer
equipment and services company, for approximately ten years, most recently as
general manager of the Financial Services Business Unit. Ms. Ernst has also
served as Director, Medical Computing Services Division and Assistant
Professor, Medicine and Computer Science at The Ohio State University and as a
Congressional Fellow in the Office of Technology Assessment. Ms. Ernst serves
on the Board of Directors of The Institute for the Future, Phoenix
International and Advanced Fibre Communications, Inc. Ms. Ernst holds a B.S. in
Mathematics, a Masters Degree in Computer Science and a Ph.D. in Technology and
Organizational Change from The Ohio State University.

   T.L. Thompson.  Mr. Thompson has served as Chief Financial Officer since
January 1999. Mr. Thompson served as Chief Financial Officer of Narrowline, an
Internet marketing firm, from October 1996 to November 1998. From 1989 to 1996
he served in various financial capacities at Ziff-Davis Publishing Company,
most recently as Vice President of Business Development. Mr. Thompson holds a
B.S. in Economics and an M.B.A. from Northwestern University.

   Charles Picasso.  Mr. Picasso has served as Chief Operating Officer since
September 2000. From 1999 to 2000, Mr. Picasso served as President at CDI
Information Technology Services. From 1996 to 1998, he served as Senior Vice
President, Worldwide Profession Services Unit at NCR Corporation/AT&T Global
Solutions. From 1995 to 1996, he served as President and Chief Executive
Officer of AT&T Istel, AT&T Solutions Europe. Prior to that position, he served
as Vice President, European and Asian Operations with Control Data Corp. in
London, and as President and CEO of the Concept Group in Paris. Prior to that,
he worked at Prime Computer, Inc. and Xerox Corp., including senior management
positions in sales and marketing. He served on the Advisory Board of the
College of Engineering, Wright State University in Ohio. He graduated from the
University of Sciences at Montpellier in France with a degree in computer
science.

                                      1
<PAGE>

   Chris Albinson.  Mr. Albinson has served as Chief Strategy Officer since
January 2001 and previously served as Vice President of Corporate Development
since September 1999. From 1993 to August 1999, Mr. Albinson served as
Assistant Vice President at Newbridge Networks Corp., manufacturer of digital
electronic network products. Mr. Albinson holds an M.B.A. from the University
of WesternOntario

   Howard Lasky.  Mr. Lasky has served as Vice President, General Counsel and
Secretary since March 2000. From 1997 through March 2000, Mr. Lasky was a
partner and from 1988 through 1997 an associate at the law firm of Howard,
Rice, Nemerovski, Canady, Falk and Rabkin.

   Tim Wilson.  Mr. Wilson has served as Chief Marketing Officer since January
2001, and previously served as Vice President of Marketing since March 1998.
From December 1996 to March 1998, Mr. Wilson served as General Manager within
the Business Communications Systems Division of Lucent Technologies, a
telecommunications equipment supplier. Mr. Wilson also served as Executive
Director and General Manager of the Business Communications Systems Division of
AT&T Australia from November 1994 to December 1996. Mr. Wilson holds a B.A. in
Physics from Bowdoin College and an M.B.A. from the Fuqua School of Business at
Duke University.

   Charlie Bass.  Dr. Bass has served as a director since March 1997. Dr. Bass
is Trustee of The Bass Trust. He also serves on the board of directors of Socket
Communications, Inc. and on the board of directors of several private
communications companies. Prior to co-founding Ungermann-Bass in 1979, Dr. Bass
was at Zilog, Inc., and prior to the formation of Zilog, Inc. in 1975, he was on
the Electrical Engineering and Computer Sciences faculty at the University of
California at Berkeley from 1972 to 1975. Dr. Bass holds a Ph.D. in Electrical
Engineering from the University of Hawaii where he participated in the Aloha
System research in radio frequency-based computer networks.

   Christos Cotsakos.  Mr. Cotsakos has served as a director of Digital Island
since July 1998. Mr. Cotsakos joined E*TRADE, an online financial services
company, in March 1996 as the President and Chief Executive Officer and as a
director. Before joining E*TRADE, he served as President, Chief Operating
Officer, Co-Chief Executive Officer and a director of AC Nielsen Inc., a
marketing research company. Prior to joining AC Nielsen, Mr. Cotsakos spent 19
years with Federal Express Corporation, where he held a number of senior
executive positions. In addition to E*TRADE, Mr. Cotsakos serves on the boards
of directors of Critical Path, Inc., Fox Entertainment Group, Inc., National
Processing, Inc., Official Payments Corp., PlanetRx.com, Inc. and Tickets.com,
Inc., as well as several private companies. A decorated Vietnam veteran, he
received a B.A. from William Paterson College and an M.B.A. from Pepperdine
University. Mr. Cotsakos is currently pursuing a Ph.D. degree in economics at
the University of London.

   Marcelo Gumucio.  Mr. Gumucio has served as a director since January 1998,
and served as Chairman of the board of directors from January 1998 until May
1998. He is the managing partner of Gumucio Burke & Associates, a private
investment firm. In April 1996, Mr. Gumucio joined Micro Focus PLC, an
enterprise software provider, as its Chief Executive Officer. He had served as
a non-executive director of Micro Focus' board of directors since January 1996.
Prior to joining Micro Focus, from 1992 to 1996, Mr. Gumucio was President,
Chief Executive Officer and Chairman of the board of directors of Memorex Telex
NV. Mr. Gumucio's professional experience in the computer and communications
industry spans almost 30 years and includes senior management positions at Cray
Research, Inc., Northern Telecom Limited, Memorex Corporation and Hewlett-
Packard Company. Mr. Gumucio serves on the board of directors of BidCom Inc.,
Burr Brown Corporation and E-Stamp Corporation. Mr. Gumucio graduated cum laude
with a B.S. in mathematics from the University of San Francisco in 1960. He
received an M.S. in applied mathematics and operations research in 1963 from
the University of Idaho, where he was named a National Science Fellow and
graduated with honors. In 1982, he graduated from the Harvard Business School
Advanced Management Program.

                                      2
<PAGE>

   G. Bradford Jones.  Mr. Jones has served as a director since December 1999.
Mr. Jones is a founding General Partner at Redpoint Ventures, a venture capital
fund which invests in Internet communications, media and commerce companies.
Prior to founding Redpoint Ventures in 1999, Mr. Jones was a General Partner
with Brentwood Venture Capital, which he joined in 1981. Mr. Jones also
currently serves on the board of directors of Onyx Acceptance Corporation, a
specialized consumer finance company, Interpore International, a medical device
company, Trading Edge, an Internet-based fixed income securities broker,
Stamps.com, an Internet postage company, and several privately-held companies.
Mr. Jones received a B.S. in Chemistry from Harvard University, a M.S. degree
in Physics from Harvard University and a J.D./M.B.A. from Stanford University.

   Shahan Soghikian.  Mr. Soghikian has served as a director since February
1999. He has over fourteen years of private equity and investment banking
experience, and is a General Partner and head of the West Coast office of JP
Morgan Partners (formerly Chase Capital Partners). Since joining Chase Capital
in 1990, Mr. Soghikian has been involved with numerous venture investments and
was responsible for developing and managing the firm's European activities from
1994 to 1998. He currently serves as a director of Ninth House Network,
Complient, Halo Data Devices, MetroOptix, Coactive Networks, Nextec
Applications and DJ Orthopedics. He received his B.A. from Pitzer College and
an M.B.A. from the Anderson School of Business at the University of California
at Los Angeles.

   Our executive officers are elected by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships among any of the directors or executive
officers of the Company.

                                       3
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

Summary of Cash and Certain Other Compensation

   The following table sets forth certain summary information concerning the
compensation earned by our chief executive officer and each of the four most
highly compensated executive officers (determined on the basis of their salary
and bonus for the 2000 fiscal year) for services rendered in all capacities to
the Company and its subsidiaries for the fiscal years ended September 30, 2000
and September 30, 1999, respectively. The listed individuals are referred to as
the named executive officers. There are no other executive officers who would
have otherwise been includible in the table below on the basis of salary and
bonus earned for the 2000 fiscal year that have been excluded by reason of their
termination of employment or change in executive status during that fiscal year.

   The option grants reflected in the table below were made either under our
1997 Stock Option and Incentive Plan, our 1998 Stock Option/Stock Issuance Plan
or our 1999 Stock Incentive Plan.

<TABLE>
<CAPTION>
                                                     Long-Term
                                       Annual       Compensation
                                    Compensation     Securities
    Name and Principal           ------------------  Underlying     All Other
       Position(s)          Year Salary($) Bonus($)   Options    Compensation($)
    ------------------      ---- --------- -------- ------------ ---------------
<S>                         <C>  <C>       <C>      <C>          <C>
Ruann F. Ernst............  2000 $218,174  $71,000     375,000       $38,379(1)
 Chief Executive Officer    1999  185,961   64,250   1,044,159        24,620(1)
 and Chairman of the Board
 of Directors

Rick Schultz..............  2000  164,119   87,600      35,000           --
 Vice President, Sales and  1999   82,500   23,111     200,000           --
 Implementation Services

Tim Wilson................  2000  170,417   65,900      60,000           --
 Chief Marketing Officer    1999  180,446   51,250     280,000           --

Paul Evenson..............  2000  174,321   49,000      30,000           --
 Vice President,            1999  146,635   27,222     200,000           --
 Operations

Chris Albinson............  2000  180,000   37,500      45,000        18,476(2)
 Chief Strategy Officer     1999   37,500      --      200,000           --
</TABLE>
--------
(1) Consists of reimbursement of rent for Ms. Ernst's apartment in San
    Francisco, California.
(2) Consists of forgiveness of a portion of an outstanding loan we made to Mr.
    Albinson.

                                       4
<PAGE>

Stock Options and Stock Appreciation Rights

   The following table sets forth information regarding option grants to each
of the named executive officers during the fiscal year ended September 30,
2000. No stock appreciation rights were granted to the named executive officers
during the 2000 fiscal year.

<TABLE>
<CAPTION>
                                                                    Potential Realizable
                                                                      Value at Assumed
                                    Percent of                        Annual Rates of
                         Number or    Total                             Stock Price
                         Securities  Options   Exercise               Appreciation for
                         Underlying Granted to of Base                  Option Term
                          Options   Employees    Price  Expiration ----------------------
    Name                 Granted(#)  in 2000    ($/Sh)     Date        5%         10%
    ----                 ---------- ---------- -------- ---------- ---------- -----------
<S>                      <C>        <C>        <C>      <C>        <C>        <C>
Ruann F. Ernst..........  250,000      3.6%     $49.44   11/15/09  $7,773,131 $19,698,653
Ruann Ernst.............  125,000      1.8%      17.19    5/24/10   1,351,336   3,424,553
Rick Shultz.............   35,000      0.5%      25.88    4/14/10     569,652   1,443,612
Tim Wilson..............   60,000      0.8%      25.88    4/14/10     976,547   2,474,763
Paul Evenson............   15,000      0.2%      38.69   10/25/09     364,979     924,928
Paul Evenson............   15,000      0.2%      25.88    4/14/10     244,137     618,691
Chris Albinson..........   25,000      0.4%      84.50    1/31/10   1,328,539   3,366,780
Chris Albinson..........   20,000      0.3%      17.19    5/24/10     216,214     547,929
</TABLE>

   Each option has a maximum term of 10 years, subject to earlier termination
upon the optionee's cessation of service with Digital Island. Ms. Ernst's
option for 250,000 will vest and become exercisable in 48 successive equal
monthly installments over the 48-month period measured from November 15, 1999.
Her additional option for 125,000 shares will vest and become exercisable in 48
successive equal monthly installments over the 48-month period measured from
May 24, 2000. Mr Schultz's option for 35,000 shares will vest and become
exercisable in 48 successive equal monthly installments over a 48-month period
measured from April 10, 2000. Mr. Wilson's option for 60,000 shares will vest
and become exercisable in 48 successive equal monthly installments over a 48-
month period measured from April 10, 2000. Mr Everson's first option for 15,000
shares will vest and become exercisable in 48 successive equal monthly
installments over a 48-month period measured from October 25, 1999. Mr
Everson's additional option for 15,000 shares will vest and become exercisable
in 48 successive equal monthly installments over a 48-month period measured
from April 10, 2000. Mr. Albinson's option for 25,000 shares will vest and
become exercisable in 48 successive equal monthly installments over a 48-month
period measured from January 31, 2000. Mr Albinson's additional option for
20,000 shares will vest and become exercisable in 48 successive equal monthly
installments over the 48-month period measured from May 24, 2000.

   The actual stock price appreciation over the 10-year option term may not be
at the above 5% and 10% assumed annual rates of compounded stock price
appreciation or at any other defined level. Unless the market price of common
stock appreciates over the option term, no value will be realized from the
option grant made to the named executive officer.

   In November 2000 , the board of directors granted Ms. Ernst an additional
option for 300,000 shares with an exercise price of $8.25, equal to the fair
market value of our common stock at the time of grant. This option will vest
and become exercisable in 48 successive equal monthly installments.

   In November 2000, the board of directors granted Mr. Schultz an option for
15,000 shares with an exercise price of $8.25, equal to the fair market value
of our common stock at the time of grant. This option will vest and become
exercisable in 48 successive equal monthly installments.

   In November 2000, the board of directors granted Mr. Wilson an option for
80,000 shares with an exercise price of $8.25, equal to the fair market value
of our common stock at the time of grant. This option will vest and become
exercisable in 48 successive equal monthly installments.

                                      5
<PAGE>

   In November 2000, the board of directors granted Mr. Evenson an option for
50,000 shares with an exercise price of $8.25, equal to the fair market value
of our common stock at the time of grant. This option will vest and become
exercisable in 48 successive equal monthly installments.

   In November 2000, the board of directors granted Mr. Albinson an option for
175,000 shares with an exercise price of $8.25, equal to the fair market value
of our common stock at the time of grant. This option will vest and become
exercisable in 48 successive equal monthly installments.

Aggregated Option/SAR Exercises and Fiscal Year-End Values

   The following table sets forth information with respect to the named
executive officers concerning their exercise of stock options during the fiscal
year ended September 30, 2000 and the number of shares subject to unexercised
stock options held by them as of the close of such fiscal year. No stock
appreciation rights were exercised during the fiscal year ended September 30,
2000, and no stock appreciation rights were outstanding at the close of such
year.

   In the following table, "Value Realized" is equal to the difference between
the fair value of the shares at the time of exercise and the exercise price
paid for the shares and the "Value of Unexercised In-The-Money Options at Year-
End" is based upon the closing selling price per share at the close of the 2000
fiscal year less the exercise price payable per share.

            Aggregated Option Exercises in 2000 and Year-End Values

<TABLE>
<CAPTION>
                                                   Number of Securities      Value of Unexercised
                                                  Underlying Unexercised    In-the-Money Options at
                           Shares                   Options at Year-End            Year-End
                         Acquired on    Value    ------------------------- -------------------------
    Name                 Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
    ----                 ----------- ----------- ----------- ------------- ----------- -------------
<S>                      <C>         <C>         <C>         <C>           <C>         <C>
Ruann F. Ernst..........   146,600   $7,173,138    437,137      602,090    $6,220,996   $4,744,419
Rick Schultz............    23,529      639,754     54,095      157,376       702,830    1,856,000
Tim Wilson..............    70,444    5,296,800     45,301      171,006       584,275    1,905,937
Paul Evenson............    21,233    1,060,748     64,222      144,545       895,671    1,794,124
Chris Albinson..........    12,250      111,720     49,581      183,169         2,601       28,599
</TABLE>

            EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS

   We have entered into employment agreements with Ms. Ernst, and Messrs.
Schultz, Evenson, Wilson and Albinson, each of whom are named executive
officers of Digital Island. All outstanding options held by the foregoing
officers will automatically vest in full upon an acquisition of Digital Island
by merger, sale of substantially all the assets or sale of more than 50% of our
outstanding voting securities, unless those options are assumed or otherwise
continued in effect by a successor entity and our repurchase rights for any
unvested shares subject to those options are to remain in force following such
acquisition.

   Ruann F. Ernst, our Chief Executive Officer, previously entered into an
employment agreement with us on May 20, 1998 in connection with her
commencement of employment. On December 15, 1999, the agreement was amended and
restated to increase her salary and bonus levels and to provide her with
enhanced severance benefits. Accordingly, should Ms. Ernst's employment be
involuntarily terminated (other than for cause) in the absence of a change in
control or ownership of Digital Island or more than 18 months following such a
change in control or ownership, she will become entitled to the following
severance benefits: (i) 12 months of salary continuation, (ii) 50% of her
target bonus for the fiscal year in which her involuntary termination occurs,
provided the designated performance milestones for that year are actually
attained, (iii) continued health care coverage at our expense for up to 12
months and (iv) 12 months of accelerated vesting of her outstanding stock

                                       6
<PAGE>

options. Should her employment be involuntarily terminated (other than for
cause) within 18 months following a change in control or ownership of Digital
Island, she will become entitled to the following change in control severance
benefits: (i) 12 months of salary continuation, (ii) 50% of her target bonus
for the fiscal year in which her involuntary termination occurs, provided the
designated performance milestones for that year are actually attained, (iii)
continued health care coverage at our expense for up to 12 months and (iv)
accelerated vesting of all her outstanding stock options, with the right to
exercise those options for up to one year following the date of her involuntary
termination. For purposes of such severance benefits, an involuntary
termination will include any constructive termination resulting in her
resignation within 90 days following a material reduction in her duties, a
reduction in her base salary or a relocation of her principal place of
employment by more than 50 miles. Should she resign for any other reason within
6 months after a change in control or ownership of Digital Island, her
severance benefits will be limited to 24 months of accelerated vesting under
her outstanding options, with the right to exercise those options for up to one
year following such resignation. Ms. Ernst will be subject to certain non-
compete covenants and consulting obligations for up to a two-year period
following her termination or resignation.

   On February 18, 1999, Rick Schultz, Digital Island's Vice President of Sales
and Implementation Services, entered into an employment agreement with Digital
Island. Should Mr. Schultz's employment be involuntarily terminated (other than
for cause) within 18 months following a change in control or ownership of
Digital Island, he will become entitled to accelerated vesting of all his stock
options.

   On October 26, 1998, Paul Evenson, Digital Island's Vice President of
Operations, entered into an employment agreement with Digital Island. Should
Mr. Evenson's employment be involuntarily terminated (other than for cause) in
the absence of a change in control or ownership of Digital Island or more than
18 months following such a change in control or ownership, he will become
entitled to the following severance benefits: (i) 6 months of salary
continuation, and (ii) continued health care coverage at our expense for up to
6 months. Should his employment be involuntarily terminated (other than for
cause) within 18 months following a change in control or ownership of Digital
Island, he will also become entitled to accelerated vesting of all his stock
options.

   On March 16, 1998, Tim Wilson, Digital Island's Chief Marketing Officer,
entered into an employment agreement with Digital Island. Should Mr. Wilson's
employment be involuntarily terminated (other than for cause) within 18 months
following a change in control or ownership of Digital Island, he will be
entitled to accelerated vesting of all his stock options.

   On July 13, 1999, Chris Albinson, Digital Island's Chief Strategy Officer,
entered into an employment agreement with Digital Island. Should Mr. Albinson's
employment be involuntarily terminated (other than for cause) within 18 months
following a change in control or ownership of Digital Island, he will be
entitled to accelerated vesting of all his stock options.

                                      7
<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   The following table sets forth certain information known to us with respect
to the beneficial ownership of our common stock as of December 31, 2000, except
as noted in the footnotes below by:

  . all persons who are beneficial owners of 5% or more of our common stock;

  . each director;

  . our Chief Executive Officer and the four named executive officers for the
    fiscal year ended September 30, 2000, whose salary and bonus exceeded
    $100,000; and

  . all named executive officers and directors a group.

   Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned, subject to
community property laws, where applicable.

<TABLE>
<CAPTION>
                                                       Beneficial Ownership
                                                             of Shares
                                                       ------------------------
Name of Beneficial Owner                                 Number       Percent
------------------------                               ------------- ----------
<S>                                                    <C>           <C>
Officers and Directors:
  Ruann F. Ernst(1)...................................       829,573       1.0%
  Rick Schultz(2).....................................        78,991         *
  Tim Wilson(3).......................................       175,311         *
  Paul Evenson(4).....................................        94,922         *
  Chris Albinson(5)...................................        88,858         *
  Charlie Bass(6).....................................       501,228         *
  Marcelo A. Gumucio(7)...............................       203,825         *
  Christos Cotsakos(8)................................        63,866         *
  G. Bradford Jones(9)................................       177,798         *
  Shahan Soghikian(10)................................        10,000         *
  All directors and named executive officers as a
   group (10 people)(11)..............................     2,224,372       2.7%
</TABLE>
--------
*   Less than 1% percent.
1.  Stock consists of 302,332 shares of common stock held directly by Ms. Ernst
    and 527,241 shares of common stock subject to options exercisable within 60
    days of December 31, 2000.
2.  Consists of 78,991 shares of common stock subject to options exercisable
    within 60 days of December 31, 2000.
3.  Consists of 92,677 shares of common stock held directly by Mr. Wilson and
    82,634 shares of common stock subject to options exercisable within 60 days
    of December 31, 2000.
4.  Consists of 3,200 shares of common stock held directly by Mr. Evenson and
    91,722 shares of common stock subject to options exercisable within 60 days
    of December 31, 2000.
5.  Consists of 88,858 shares of common stock subject to options exercisable
    within 60 days of December 31, 2000.
6.  Consists of 91,945 shares of common stock held by directly Mr. Bass, 25,000
    shares held by his spouse, 374,228 shares of common stock held directly by
    the Bass Trust U/D/T dated April 29, 1988 (the "Bass Trust") and 10,000
    shares of common stock subject to options exercisable within 60 days of
    December 31, 2000. Mr. Bass, a director of Digital Island, is the Trustee
    of the Bass Trust.
7.  Consists of 193,825 shares of common stock held directly by Mr. Gumucio and
    10,000 shares of common stock subject to options exercisable within 60 days
    of December 31, 2000.
8.  Consists of 27,222 shares of common stock subject to options exercisable
    within 60 days of December 31, 2000 and 36,644 shares of common stock held
    directly by The Cotsakos Revocable Trust, dated September 3, 1987. Excludes
    2,013,367 shares of common stock, held by E*TRADE Group, Inc.

                                       8
<PAGE>

    Mr. Cotsakos, a director of Digital Island, is the Trustee of the Cotsakos
    Trust and Chairman of the Board and Chief Executive Officer of E*TRADE
    Group, Inc. Mr. Cotsakos disclaims beneficial ownership of the shares of
    common stock held by E*TRADE Group, Inc. except to the extent of his
    pecuniary interest therein.
9.  Consists of 120,057 shares of common stock held directly by him, 28,645
    shares of common stock held directly by the Jones Family Trust, 9,548
    shares of common stock held by W.H. Walecka Trust, DTD 11/15/97, J.E.
    Walecka Trust DTD 11/15/97, and 10,000 shares of common stock subject to
    options exercisable within 60 days of December 31, 2000. Excludes any
    additional shares of common stock held by the Brentwood Venture Capital
    entities. Mr. Jones, a director of Digital Island and a General Partner of
    Redpoint Ventures, was formerly a General Partner of Brentwood Venture
    Capital . Mr. Jones disclaims beneficial ownership of the shares of common
    stock held by the Brentwood Venture Capital entities except to the extent of
    his pecuniary interest therein. Mr. Jones is the Trustee of the W.H. Walecka
    Trust and J.E. Walecka Trust.
10. Consists of 10,000 shares of common stock subject to options exercisable
    within 60 days of December 31, 2000. Excludes 2,590,266 shares of common
    stock held by Chase Venture Capital Associates, L.P. Mr. Soghikian, a
    director of Digital Island, is a General Partner of JP Morgan Partners, the
    General Partner of Chase Venture Capital Associates, L.P. Mr. Soghikian
    disclaims beneficial ownership of the shares of common stock held by Chase
    Venture Capital Associates, L.P. except to the extent of his pecuniary
    interest therein.
11. See footnotes 1 through 10 above. Includes options exercisable for 936,668
    shares of common stock within 60 days of December 31, 2000.

                                       9
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Indemnification Agreements

   We have entered into indemnification agreements with each of our directors
and executive officers. These agreements require us, among other things, to
indemnify such directors and officers for certain expenses, judgements, fines
and settlement amounts incurred by such person in any threatened, pending or
complete action, suit or proceeding by reason of any event or occurrence
arising out of such person's services as a director or officer.

Officer Loans

   On April 21, 1999, Ms. Ernst, our current Chairman of the Board and Chief
Executive Officer, delivered a promissory note to us in payment of the
exercise price of certain outstanding stock options she held under our 1998
stock option/stock issuance plan. Ms. Ernst delivered a full-recourse
promissory note in the principal amount of $199,998 in payment of the exercise
price for 133,332 shares of our common stock. The note bears interest at the
rate of 7.75% per annum, compounded semi-annually, and is secured by the
purchased shares. Accrued interest is due and payable at successive quarterly
intervals over the four-year term of the note, and the principal balance will
become due and payable in one lump sum at the end of such four-year term.
However, the entire unpaid balance of the note will become due and payable
upon termination of employment or failure to pay any installment of interest
when due. None of the shares serving as security for the note may be sold
unless the principal portion of the note attributable to those shares,
together with the accrued interest on that principal portion, is paid to us.

   On June 14, 1999, Ms. Ernst borrowed an additional $128,000 from us in
order to finance the tax liability she incurred in connection with the April
21, 1999 exercise of her stock options for 133,332 shares. The loan is
evidenced by a full-recourse promissory note with interest at the rate of
7.75% per annum, compounded semi-annually, and secured by the same 133,332
shares which serve as collateral for Ms. Ernst's April 21, 1999 promissory
note. The terms of her note, including the due dates for payment of principal
and accrued interest and the acceleration provisions, are substantially the
same as the terms in effect for her April 21, 1999 note. The April 21 and June
14, 1999 promissory notes from Ms. Ernst aggregate to a principal total
indebtedness to Digital Island of $327,998.

   In December 2000, the Company forgave a total of $109,333 of Ms. Ernst's
outstanding principal loans.

   On July 13, 1999, Mr. Albinson, our current Chief Strategy Officer, borrowed
$100,000 from us. The loan is interest free, with $50,000 being forgiven ratably
over a period of five years. At the end of the five-year term, the $50,000
portion of the loan that has not been forgiven is to be repaid in one lump sum.
In the event that Mr. Albinson's employment terminates during the five-year
period, the outstanding unforgiven balance of the loan is to be repaid at the
time of the termination.

   In December 2000, Mr. Albinson's loan terms were revised such that $45,000
of his outstanding principal balance is to be forgiven on April 18, 2001, and
the remaining $45,000 is to be forgiven on October 18, 2001, provided he
continues in our employ.

   On November 8, 2000, Mr. Charles Picasso, our current Chief Operating
Officer, delivered two promissory notes to us totaling $600,000. The first
promissory note of $150,000 accrues interest at 8% per annum. The first
principal payment of $100,000 is due upon the sale of Mr. Picasso's previous
residence. The final principal payment, together with accrued interest is due
in November 2001. The second promissory note of $450,000 accrues interest at
8% per annum. Principal payments commence in November 2002 on a monthly basis
until the final payment date in November 2004. The notes are secured by Mr.
Picasso's principal residence.

                                      10
<PAGE>

   The following table indicates the highest amount outstanding under each of
the foregoing loans during the 2000 fiscal year and the amount outstanding
under each loan as of December 31, 2000:

<TABLE>
<CAPTION>
                                                            Highest    Current
                                                            FY 2000  Outstanding
                                                            Balance    Balance
                                                            -------- -----------
   <S>                                                      <C>      <C>
   Ms. Ernst............................................... $327,998  $218,665
   Mr. Albinson............................................ $100,000  $ 90,000
   Mr. Picasso............................................. $    --   $600,000
</TABLE>

E*TRADE Agreements

   We have previously entered into a global data distribution agreement with
E*TRADE dated August 1, 1997 where we provide hosting and network services for
E*TRADE. Mr. Costakos, a member of our board of directors, is President, Chief
Executive Officer and a director of E*TRADE.


                                      11
<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                          Digital Island, Inc.
Date: January 26, 2001

                                          By: /s/ Ruann F. Ernst
                                              ---------------------------------
                                              Ruann F. Ernst, Chief Executive
                                              Officer and Chairman of the Board
                                              of Directors
                                              (Principal Executive Officer)


<PAGE>

                                EXHIBIT INDEX

Exhibit
Number       Description
-------      -----------
 23.1        Consent of Independent Auditors