Software development is a knowledge intensive activity and software developers are knowledge workers. Knowledge needed for software development is often distributed among different developers. Supporting efficient knowledge collaboration and transfer is thus essential for software development organizations to remain competitive. This paper proposes a new theory - dynamic community to support knowledge collaboration and discusses its application in software development. Dynamic community integrates the traditional knowledge management approach in which knowledge is formalized and accumulated in knowledge repositories, and the community-based knowledge collaboration approach in which knowledge is transferred through informal community participation and human contacts. The dynamic community theory takes into full consideration individual knowledge workers' ever-changing needs for new knowledge as well as the role of social relationship of knowledge workers in effective knowledge collaboration. This paper introduces the dynamic community theory, a general system architecture of sociotechnical environments in support of dynamic community, and its application in software development.