Townsend's side are second in the table - a point above England and three clear of France - ahead of matches away to Italy and Grand Slam-chasing Ireland in the concluding two rounds of the championship.
A narrow opening win over Wales and a convincing 30-21 defeat of England came either side of an agonising loss to France that scuppered Scotland's hopes of a clean sweep.
Townsend, however, feels his men are yet to find top gear as he announced his team Thursday to play Italy this weekend.
"You've obviously got to be delighted for the team to beat England and retain the Calcutta Cup," he said.
"But in terms of performance, we're a little bit away from what we know we can deliver. The first 45 minutes against Wales is probably still the best we've played."
The former Scotland playmaker added: "We had elements of control throughout much of the France game and for the last 60 minutes of the England game. But there's still a lot more to come from us."
Even if Scotland win in Rome on Saturday, Ireland would make sure of consecutive titles if they secure a bonus-point win over England later in the day at Twickenham.
'In the mix'
But should the Irish suffer a shock loss, Scotland could travel to Dublin for a March 16th title decider.
"We're into the last two rounds of the championship still in the mix, although it's an outside chance for the championship," said Townsend. "There's a lot to play for this weekend and again in Dublin."
Scotland, who exited last year's World Cup at the group stage, have never finished higher than third since the Five Nations became the Six Nations in 2000 - a year in which they were defending champions.
"We're focused on the performance and we know that at times it's been better since the World Cup and last year's Six Nations but still not where we believe this team can be," said Townsend.
Scotland have made three changes for the game at the Stadio Olimpico, with George Horne replacing rested Toulon scrum-half Ben White as the Glasgow No. 9 makes his first Test start since the 2019 World Cup.
Bath centre Cameron Redpath replaces the injured Sione Tuipulotu and Saracens flanker Andy Christie has been given a first Test start in place of benched former captain Jamie Ritchie.
Scrum-half Ali Price, yet to feature in the tournament, is among Scotland's replacements.
"We feel Ben has played a lot of rugby, he's only missed one game since October," said Townsend.
"Going back and forward to Toulon during this period, something's got to give in terms of a rest at some point, and we feel this week is the best week for him to recharge."
