Technological innovation for defence-related purposes has often facilitated major advances of socio-economic significance well beyond the defence sector. In the post-Cold War era, government spending on military research and development (R&D) is falling around the world but for Australia, the changing strategic environment presents challenges which imply there may be substantial benefits from maintaining existing, modest levels of domestic R&D effort This paper examines the policy drivers in this area, embedding analysis of defence R&D spending in the broader processes of procuring R&D-intensive, hi-tech weapons systems. It concludes that if Australia is to reduce the inefficiencies often associated with defence procurement, it may need to have a core of defence-dedicated R&D undertaken by government itself.