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Dynamic capability is an emergent field of firms encountering turbulent administrative environment. Eisenhardt and Martin (2000) point out that firms with dynamic capability are not guaranteed to enhancing organizational performance, but without dynamic capability it is impossible for firms to enhance organizational performance. Another research stream in current management thoughts is related to knowledge management that has been confirmed to be a major source of competitive advantage. Research question of this research is whether or not knowledge management contributes to the enhancement of dynamic capability, and thus to the enhancement of competitive advantage of a firm. Following previous research interest of knowledge management on the application of information technology (IT), this research incorporates knowledge management facilitated by IT to examine the effect on enhancement of dynamic capability. Based on a survey of top 1000 Taiwanese firms, the current empirical research tests relevant hypotheses with regression models. Empirical findings include management of both endogenous and exogenous knowledge through IT applications significantly affects the enhancement of dynamic capability. Results shed light to current strategic management issues.