This paper examines how federal systems of government in Canada and Australia deal with the challenges of promoting regional innovation and knowledge‐based industries. It focuses on selected cases of federal and regional (provincial or municipally based) policy initiatives and structures that support cross‐sector collaboration between ‘knowledge institutions’ (such as universities) and locally based industries. The study reveals both anticipated commonalities in and unexpected differences between the Canadian and Australian innovation environments and policy approaches. Federalism, resource‐based economies and sparse population have led to similar concerns and solutions. However, building local innovation systems and networks is a question of building on social capital and Canada seems rather more inventive and effective than Australia in turning social capital into sustainable organisations. Several regions of Canada have developed very strong community involvement in networks and institutions for improving technological skills, awareness and programmes—examples which provide valuable lessons for Australia.