With increasing attention on e-business and its implications for firm performance from both academia and practitioners, the study focuses on the mechanism under which e-business contributes to firm competitive advantage in the uncertain and dynamic environment. Drawing upon resource-based theory and dynamic capabilities approach, this study develops a theoretical framework that links e-business engagement to firm capabilities, and then firm performance. By emphasizing the implications of e-business in capabilities-building, the framework not only advances our understanding of the roles of e-business in firm, but also provides a sound theoretical basis for further empirical studies on this topic. The implications of this research for practitioners are discussed.