To incorporate the effects of tropical cyclone (TC)-induced upper ocean mixing and sea surface temperature (SST) cooling on TC intensification, a vertical average of temperature down to a fixed depth was proposed as a replacement for SST within the framework of air-sea coupled Potential Intensity (PI). However, the depth to which TC-induced mixing penetrates may vary substantially with ocean stratification and storm state. To account for these effects, here we develop a “Dynamic Potential Intensity” (DPI) based on considerations of stratified fluid turbulence. For the Argo period 2004–2013 and the three major TC basins of the Northern Hemisphere, we show that the DPI explains 11–32% of the variance in TC intensification, compared to 0–16% using previous methods. The improvement obtained using the DPI is particularly large in the eastern Pacific where the thermocline is shallow and ocean stratification effects are strong.