In light of the negative social and environmental impacts of the textile industry, a paradigm shift towards a more circular economy is inevitable. Automated textile sorting embodies a crucial but missing link to connect forward and reverse supply chains for circular economy, however scalability challenges exist. Therefore, the study explores how dynamic capabilities can overcome scalability challenges specific to automated textile sorting pilots in Northwestern Europe to create commercially viable solutions. A single case study using an abductive approach guided by the dynamic capabilities view explores automated textile sorting pilots’ approaches to dynamic capability microfoundations. Primary data include semi-structured interviews, which is complemented by secondary data documents, and both were analysed qualitatively via thematic analysis. The data reveal that known scalability challenges remain and new scalability challenges related to market disruptions exist, such as COVID-19. Scalability challenges are overcome through novel approaches to the microfoundations undergirding dynamic capabilities. These are found to take place in a continuous, overlapping process, and collaboration is found across all dynamic capabilities. As collaboration plays a prominent role, it should be integrated in approaches to dynamic capabilities. This study also adds to the literature on circular economy in the textile industry by confirming that known scalability challenges for automated textile sorting pilots remain, and new scalability challenges are developing in terms of market disruptions. Actors in the automated textile sorting supply chain may use these findings to support efforts to scale up automated textile sorting. For textile industry brands and recyclers, the findings can assess their readiness to participate in the automated textile sorting supply chain and support the achievement of their 2030 goals to use greater volumes of sorted textile waste fractions as feedstocks for their production processes and to be a collaborative member of the used textiles supply chain.