There has been wide recognition that today's graduates need the type of generic capabilities necessary for lifelong learning. However, the mechanism by which universities can develop these generic skills is not clearly established. This study aimed to investigate the mechanism for their development. Structural equation modeling (SEM) was used to test a hypothesized model of capability development through a suitable learning environment with 1756 undergraduates at a university in Hong Kong. To triangulate against this model and more fully characterize the learning environment, focus group interviews were held with five to six students from three programs with good records of capability development. Analysis of the interview data resulted in a set of categories, describing a learning environment, which were consistent with the SEM model. The learning environment which seemed conducive to capability development aimed for understanding of key concepts through a variety of assessment methods and active engagement in learning activities. Teacher-student relationships were developed through interaction, feedback and assistance. The promotion of peer-student relationships led to a high degree of collaborative learning.