This paper examines how incumbents navigate co-existing identities during a digital transformation (DT) journey, with a focus on the role of Digital Innovation Units (DIUs). While DT often requires a fundamental shift in organizational identity from "pre-digital" to "digital," this transformation can lead to tensions when new and old identities co-exist rather than seamlessly replace one another. Through an eight-year longitudinal interpretive case study, we explore the establishment, evolution, and eventual reintegration of a DIU designed to spearhead an incumbent's DT efforts. The findings reveal that the structural separation of the DIU led to identity tensions in the DT process. We derive a lifecycle model on how co-existing identities evolve and are navigated over time, consisting of four phases of identity work: aligning, restructuring, reconciling, and stabilizing. This lifecycle illustrates the dynamic challenges organizations face in aligning co-existing identities at the same time when on a DT journey.