This study investigated how different dimensions of digital literacy (DL) competence were related to digital literacy practices in teaching and teacher identity. Survey data were collected from 910 pre-service teachers in China. Structural equation modelling (SEM) was conducted to analyse the data. Findings indicated that among the five dimensions of DL competence, three were significant positive predictors of digital practices in teaching, including information and information literacy, communication and collaboration, and security. In addition, digital literacy practices significantly and positively predicted teacher identity and mediated the effect of DL competence on teacher identity. The study suggests the significance of enhancing DL competence and integrating digital technology as pedagogical tools to help pre-service teachers bridge the gap between their personal use of technology and teacher identity in relation to digital literacy.