Over the past 40 years, Leader-Member Exchange (LMX) has been spotlighted as an important leadership theory explaining organizational members' attitudes, behaviors, and performance, and the positive effects of LMX have been validated through numerous theoretical reviews and meta-analyses. However, since the early 2000s, as the "too-much-of-a-good-thing" (TMGT) effect began to be formally proposed, the functional benefits of LMX came under suspicion, and the TMGT effect of LMX was eventually posited based on the social exchange perspective. This study aims to investigate the nonlinear relationship between LMX and innovative behavior by drawing on the stress perspective and the dominant fit perspective. Additionally, noting that at high levels of LMX, subordinates may lack coping capacity and leaders may experience a sense of loss of control due to granting high autonomy to subordinates, this study proposes team dynamic capability—an intellectual ability embedded in teams that can provide procedural rationality and has recently attracted attention—and seeks to examine the cross-level moderating effect of team dynamic capability on the relationship between LMX and innovative behavior. Analysis of data collected from team leaders and 251 team members across 66 teams revealed that LMX had an inverted U-shaped nonlinear effect on innovative behavior. Contrary to the hypothesis, the inverted U-shaped nonlinear effect of LMX on innovative behavior was strengthened in teams with higher team dynamic capability. The managerial implications of these findings, along with the limitations of the study and directions for future research, are discussed.