University education is a significant factor in the socio-economic development of a nation and as such is expected to improve the employability capacity of the graduates. Achieving this goal, however, depends on various factors. The present study investigated the factors affecting the employability of engineering graduates of Iranian universities. To analyse this issue, a systematic grounded theory (GT) approach, drawing on in-depth interviews with academic and industry experts, was used. The participants were selected using a purposive strategy. The data analyses showed that employability is a context-oriented issue, and in addition to the university and its internal mechanisms, external factors are also involved. Based on the data, a model is presented and analysed to explain the employability of engineering graduates.