Overcoming the challenge of sustainable and inclusive growth will require innovation, i.e. new and “better” products, processes, business models, organisational practices and the creation of new firms. Moving towards this goal will depend on greater co-ordination between policies for innovation and policies for productive development, new forms of public policy governance and a renewed commitment by the private sector to economic growth based on knowledge and innovation. This chapter is divided into three sections. The first reviews key trends in innovation and productive development in Latin America. The second section analyses the main achievements and challenges in modernising the state to promote innovation. It identifies four main areas in which states have advanced in their capacity to implement more effective policies: the shift towards policy models focusing on innovation systems; the introduction of new modes of governance; the creation of new instruments for financing and technology transfer; and improvements in innovation policy management capacities. The third section proposes some recommendations to consolidate recent gains.