The transition toward sustainable manufacturing requires integrating digital innovation with environmental responsibility. In the textile sector, the adoption of Industry 4.0 technologies has become essential for achieving circular and sustainable operations. However, the mechanisms linking digitalisation to sustainability remain underexplored. This study examines how five Industry 4.0 technologies, Big Data (BD), Smart Factory (SF), Cyber-Physical Systems (CPS), Internet of Things (IoT), and Interoperability (IP) influence sustainability performance in China’s textile industry, with Circular Economy Practices (CEP) acting as a mediating factor. Adopting a quantitative, cross-sectional design, data were collected through structured questionnaires distributed to 523 professionals in textile manufacturing firms across mainland China. Using purposive sampling, firms that have either adopted or shown interest in adopting 4.0 technologies or circular practices are selected. The analysis conducted using Structural Equation Modelling (SEM) reveals that BD and CPS exert significant direct effects on sustainability performance, while SF and IoT contribute indirectly through CEP. Interoperability shows no significant impact, indicating that integration does not lead to sustainability gains unless strategically aligned with circular principles. The results confirm that circular practices act as a key mechanism transforming digital capabilities into environmental benefits. These outcomes highlight the strategic role of digital technologies, guided by the Resource-Based View (RBV), in enabling a sustainable and circular transformation of China’s textile industry.