This study investigates the dynamic capabilities (DCs) and competitive advantage of South African small and medium enterprises (SMEs). DCs are organizational processes purposefully designed to alter the “firm’s resource base” in order to achieve competitive advantage in a rapidly changing environment. Research has shown that South African SMEs contribute approximately 35% to the national gross domestic product. SMEs are significant in their contributions to economic growth, innovation of new products, technological progress and competitive advantage. However, most SMEs are confronted with challenges such as; changes in technologies, innovative products, customer demands, and the desire to remain flexible. SMEs are often faced with competitive forces which threaten their survival. The failure rate of SMEs is much higher than that of larger organizations. The statistical findings clarify the notion that DCs alone cannot lead to competitive advantage. It was found that sensing, integrative and behavioral capabilities are part of DC constructs: this study extends the used four DC constructs (absorptive, adaptive, innovative and networking capabilities) to include sensing, integrative and behavioral capabilities. The findings show DCs have significant impacts on competitive advantage, and are capable of influencing SMEs’ valuable, rare, inimitable and non-substitutable (VRIN) resources to achieve competitive advantage in a fast changing business environment.