This paper expands the innovation diffusion framework by adding a conceptual and empirical exploration of knowledge creation into understanding university technology-enhanced teaching and learning innovation. Institutional innovation research has largely focused on people and products while neglecting the underlying knowledge creation process for innovation that substantiates and sustains the diffusion of innovation across stages. Guided by a combined framework of organisational knowledge creation theory with the diffusion of technology-enhanced teaching & learning (T&L) innovation, this 4-year longitudinal qualitative study focused on a Chinese case of Tsinghua University, which has pioneered the adoption of digital teaching and learning, and generating exemplary sustainable whole-institutional teaching and learning innovation. We explored how technology leverages the interactions between technologies, adopters, and leadership within a university to build capacities for digital T&L innovation by tracing the technology innovation trajectory of Tsinghua University. The case study identified four stages of knowledge creation related to technology adoption and innovation. Of these stages, knowledge externalisation processes were found to be critical for leveraging the co-creation of knowledge for institutional innovation in the university context. Additionally, the study showed that the middle-up-down leadership strategy and middle managements’ knowledge management ability facilitated the sustainable transition from individual and group exploration to organisational innovation. The implications for strategic technology adoption and sustainable teaching and learning innovation in the university contexts are also discussed.