This study aims to explore how Taiwan new startup companies deploy their limited resources and capabilities for environmental sustainability and related capability building as an attempt to strengthen and build dynamic capabilities adapting to environmental changes. In view of the aforementioned issues, this study integrates Helfat and Peteraf’s (2015) research and finds a systematic logic among entrepreneurial cognition, dynamic capabilities, and strategic changes. This study also integrates Watson, Wilson, Smart and Macdonald’s (2018) research and discovers environmental innovation requires three levels of capabilities; namely, operational capabilities, management capabilities, and learning capabilities to active participation within the process of adapting dynamic capabilities to reduce the uncertainty of its dependence on external resources. Six SMEs in Taiwan were examined by case study method to analyze the development process of their entrepreneurial cognitive capability, innovation for environmental sustainability and dynamic capability building. Through data analysis, the important findings are as follows, 1. SMEs’ entrepreneurs in Taiwan seize opportunities by sensing external opportunities, reconfiguring resources, and integrating new resources. It creates new products and technologies that are more environmentally sustainable friendly and collaborates with new partners possessing common values of environmental sustainability. 2. It not only accumulates dynamic capabilities but also enables employees to make their products and process activities more in line with values of environmental sustainability which forms a solid basis for adopting sustainable environmental activities by SMEs. 3. The implementation of this activity is a combination of new products, new processes, new business model innovations, and environmental interactions. This learning process combines both internal and external competence embedded in the environment, and it takes time to accumulate with time compression diseconomy. Thus, it is hard to imitate by other companies. Finally, we hope this research can provide SMEs with some strategic suggestions on the innovation of environmental sustainability and further research