What are a country’s achievements in innovation, and how does this relate to economic performance? What are the major features, strengths and weaknesses, of its innovation system? How can government foster innovation? The OECD Reviews of Innovation Policy offer a comprehensive assessment of the innovation system of individual OECD member and non-member countries, focusing on the role of government. They provide concrete recommendations on how to improve policies that impact on innovation performance, including R&D policies. Each review identifies good practices from which other countries can learn. Luxembourg enjoys the highest GDP per capita in the OECD area. Its economic growth has been dynamic over the past decade reflecting largely the performance of sectors, such as the financial industry, where Luxembourg has so far successfully exploited “sovereignty niches”. To enlarge and consolidate the basis for sustained long-term growth, the government wants to promote through innovation the diversification of the economy towards new “competence niches”. Reinforcement of an historically weak public-research system, including creation of the University of Luxembourg, is a key component of this new strategy. This review assesses the governance of Luxembourg’s innovation system and suggests the reforms needed to ensure that additional public investment in R&D will yield the expected economic and social benefits.