Digital project teams are constantly faced with undeniable challenges of how to improve team performance in the interactive era of knowledge economy and digital economy. This study aims to explore the mediating role of digital capability between knowledge heterogeneity and team performance and the moderating role of knowledge conversion. This study is quantitative and horizontal, focusing on digital project teams in China. The findings indicate that team knowledge heterogeneity can predict team performance, in which team digital capability plays a mediating role. Internal knowledge conversion enhances the positive relationship between team knowledge heterogeneity and capability, and further, external knowledge conversion enhances the moderating role of internal knowledge conversion. The originality of this study is that, concerning the relationship between knowledge heterogeneity and team performance, it is the first time to develop a model that regards digital capability as a mediator and knowledge conversion as a moderator. We constitute a significant contribution to the literature. Additionally, this study contains a series of practical implications which may contribute teams to a competitive advantage in emerging markets.