Innovation in Australian local government organisations (LGOs) is poorly articulated and the subject of limited empirical research. This thesis investigates how organisational and community capabilities affect LGO innovation. Using the Dynamic Capabilities (DC) framework and a 4 stage exploratory-sequential mixed methods design it finds four operational capabilities that mediate innovation DC: interacting externally; aligning; adapting; engaging the community. It proposes improvements to LGO innovation and suggests ‘community receptiveness’ influences its success.