<p>Firms may benefit from knowledge co-creation in the innovation ecosystem, causing the innovation ecosystem to serve as an efficient way to generate breakthrough innovation. However, the in-and-out ways of knowledge co-creation in the ecosystem have not been fully explored collectively. Drawing on knowledge-based view and dynamic capability theory, we categorize two types of knowledge co-creation between the focal firm and ecosystem partners, namely embedded knowledge co-creation and alliance knowledge co-creation. Thereafter, we link knowledge co-creation and breakthrough innovation of the focal firm and further analyze the mediating role of capability reconfiguration. An empirical examination of 382 surveys from Chinese high-tech firms reveals that both two types of knowledge co-creation can promote breakthrough innovation. Besides, substitutional capability significantly mediates the relationships between knowledge co-creation and breakthrough innovation, while evolutionary capability reconfiguration suppresses the above relationships. Our findings extend the context of knowledge co-creation to innovation ecosystems and contributes to innovation and dynamic capability literature. Our study also expounds on valuable practical implications for managers.</p>