In the face of relentless global competition and regulatory pressures, the imperative for firms to digitally transform has become critical. This is particularly salient for Chinese manufacturing firms as they strive for sustainability, a multidimensional construct comprising both economic and environmental performance. Leveraging dynamic capabilities theory, this study aims to unravel the intricate interplay between digitalization, network capability, business model innovation (BMI), and environmental dynamism in shaping a firm’s sustainability performance. Our research is driven by a compelling question: How do digitalization and network capabilities impact firms’ sustainability performance, and what roles do BMI and environmental dynamism play in this relationship? To answer this question, we employed a robust survey-based methodology encompassing 1600 Chinese manufacturing firms, yielding 255 completed and validated responses. The findings reveal that network capability mediates the influence of digitalization on two types of BMI—novelty-centered and efficiency-centered. Further, these forms of BMI act as mediators between digitalization and network capability, and the two dimensions of sustainability: economic and environmental performance. Notably, environmental dynamism serves as a double-edged sword. It negatively moderates the impact of digitalization on efficiency-centered BMI, but positively moderates the influence of network capability on the same. Our study offers nuanced theoretical and practical implications. It extends dynamic capabilities theory by elucidating how digital and network capabilities can be leveraged for sustainable outcomes via business model innovation. Moreover, the research provides managerial insights, particularly for Chinese manufacturing firms, on navigating the complex landscape of digital transformation toward sustainability. Considering these insights, we recommend that firms prioritize network capabilities and strategically innovate their business models to harness the full potential of digital transformation. Simultaneously, organizations should be cognizant of the environmental dynamism within which they operate, as it can both hinder and enable their journey toward sustainability.