As digital technologies disrupt one sector after another, many companies are actively embracing digital transformation. However, the relationship between digital transformation and sustainable performance remains unclear. To fill this gap, based on an integrated perspective of dynamic capability and organizational inertia, this study examines the curvilinear relationships between digital transformation and economic and environmental dimensions of sustainable performance. Survey data from 223 Chinese companies articulate that although digital transformation fosters economic performance at an accelerating rate, it depicts an inverse U-shaped relationship with environmental performance. More interestingly, the accelerating rate of digital transformation on economic performance is quicker under low market turbulence. In contrast, when market turbulence is high, higher digital transformation is associated with worse environmental performance. This study contributes to the literature by providing new theoretical explanations for the inconsistent relationship between digital transformation and sustainable performance. This study also assists companies in re-evaluating their digital strategies. •Investigate from an integrated perspective of dynamic capability and organizational inertia.•Survey data from 223 Chinese companies.•Digital transformation fosters economic performance at an accelerating rate.•Digital transformation depicts an inverse U-shaped relationship with environmental performance.•Market turbulence is an important moderator.