Only one third of studies on the Industry 4.0–sustainability link have been conducted in manufacturing, despite its centrality to “ensuring sustainable consumption and production patterns” (UN Sustainable Development Goal nr. 12). The European Ecodesign Directive singled out machine tools as key to the sustainability transition, not least due to their high energy usage and their increasingly becoming enmeshed in cyber-physical production systems. This paper aims to find out whether the digital transformation underway in machine tools is sustainable as well as to identify its central technological pathways. Externalities in machine tools are tracked over three decades (1990–2018) by means of a multi-method setting: (1) mapping the Technological Innovation System (TIS) of machine tools; (2) co-occurrence analysis of transnational patent families, in order to reduce geographical and market distortions (Questel’s FAMPAT); and (3) analysis of the incidence of digital and sustainable technologies in machine tools patent applications (WIPO PATENTSCOPE). A smart sustainability transition is currently not hampered by a lack of smart technologies but rather by the sluggish introduction of sustainable machine tools. Cyber-physical and robot machine tools have been found to be central pathways to a smart sustainability transition. Implications for harnessing externalities reach beyond the machine tools industry.