During Web service discovery, capabilities of Web services are of major concern. This paper proposes an environment ontology based approach for specifying Web service capability semantically. First, a meta-level environment ontology is adopted in the proposed approach to provide formal and sharable specifications of environment resources in a particular domain. For each environment resource, we build a corresponding hierarchical state machine specifying its dynamic characteristics. Second, we propose to use the effect of a Web service on its environment resources for specifying the Web service capability and to designate the effect as the traces of the state transitions the Web service can impose on its environment resources. Finally, we give the mechanism to match service query with service capability description.