The question of how to embed transformative change through the implementation of sustainability principles in our education systems has become increasingly important as complex situations, like pandemics and climate change, challenge societies. Education underpinned by a sustainability paradigm requires students to develop the ability to think critically about the nature of knowledge and about the ways in which knowledge is produced and validated. Educating for these skills will require shifts in educational practice, pedagogy and new approaches to learning and teaching. As the relationship between education and sustainability has matured, there has been increasing debate around whether capability or competence frameworks best underlie the type of education we seek to embed in sustainability professionals. Within an Australian context there is a philosophical difference between these two terms and an understanding of how this relates to different typologies of sustainability and education; Education about Sustainable Development, Education for Sustainable Development or Sustainability as Education (Sustainability Education) and this has yet to be fully explored. This is increasingly important as higher education is under pressure to be efficient producers of work-ready graduates. This paper provides an overview of the context of capability and competencies in the Australian higher education context and the associated implications for education, and sustainability education. It compares a competence approach with that of a capability approach and then situates this debate within the evolution of sustainability and education. Finally, it addresses some key consequences of the contemporary approaches to sustainability and education and emphasises the role of the capability approach.