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The current study investigated the mediating effect of open innovation on the relationships between strategy agility, digital capability, entrepreneurial competencies, and sustainable competitive advantages in the green hotel industry. Design: The paper employed a quantitative study design and used a snowball sampling technique for data collection. Data were collected through 288 responses from employees involved in sustainable practices at SME green hotels in Malaysia. Partial Least Squares-Structural Equation Modelling (PLS-SEM) was used to examine the direct and mediation effects. Findings: Three factors—strategy agility, digital capability, and entrepreneurial competencies—were identified as enterprise competencies in the SME green hotel industry, predicting a positive relationship with open innovation. Open innovation mediates the relationships between the independent and dependent variables. The results also revealed a significant role of open innovation in predicting sustainable competitive advantages. Originality/Value: This study contributes to the resource-based view theory and attempts to develop a sustainable competitive advantage model for SME green hotels in developing countries.