We theoretically and empirically investigate the relationship between information technology (IT) and firm innovation. Invoking absorptive capacity (ACAP) theory, we introduce and develop the concepts of three types of IT-enabled knowledge capabilities. Firm innovation is examined through two observable innovation outcomes: patents, and new product and service introductions. These innovation outcomes are often labeled as competitive actions aggressively undertaken by firms to gain market share or to achieve profitability. We use secondary data about IT-enabled knowledge capabilities and innovation outcomes of 110 firms. Our data results provide strong support for our main assertion that knowledge capabilities that are enhanced through the use of IT contribute to firm innovation. The study's findings suggest that the three types of IT-enabled knowledge capabilities have differential effects on firm innovation. This study substantially contributes to the information systems (IS) research, methodology, and practice in multiple ways.