There has been an increased initiative to realize smart tourism in the world. However, most attempts have yet to be realized completely. The lack of theoretical discussion and modelling in tourism governance is a major contributing factor. This paper empirically explores the potential of systematic governance in achieving sustainable competitive advantage in smart tourism. We conducted a case study via qualitative interviews with tourism initiators from one of the leading tourism cities in Tokyo, Japan. In the theory building process, we adopted absorptive capacity as the theoretical foundation, and we could synthesize the outcome of our analysis into the proposed framework— Smart tourism dynamic capability governance Model. The model demonstrates how a city could dynamically manage their tourism resource and capabilities in their ecosystem toward sustainable tourism prosperity. Throughout this study, we contribute to the body of knowledge by introducing a successful tourism governance approach to compete with tourism resource rich cities.