Dynamic equivalence is an approach to translation in which the original language is translated "thought for thought" rather than "word for word" as in formal equivalence. Dynamic equivalence involves taking each sentence (or thought) from the original text and rendering it into a sentence in the target language that conveys the same meaning, but does not necessarily use the exact phrasing or idioms of the original. The idea is to improve readability by rephrasing constructions that could be confusing when literally translated, but retain some faithfulness to the original text rather than creating a complete paraphrase. There is no sharp boundary between formal equivalence, dynamic equivalence, and paraphrase; they represent rather a continuum of translation possibilites.

Because dynamic equivalence sacrifices some faithfulness to the original text to achieve a more natural translation, it is designed to be used when the readability of the translation is more important than preserving the original wording. For example, a novel could be translated with dynamic equivalence so that it reads well, but in international diplomacy, the exact original meaning may be very important, so formal equivalence would be more suited. Dynamic equivalence is most useful when the original language is very different from the target language, making a more literal translation difficult to understand.

The term "dynamic equivalence" is usually used in the context of Bible translations. The Good News Translation is a well-known Bible translation that has dynamic equivalence as its goal, although it has been criticized for not being faithful enough to the original text.