Sweden’s history, cultural and institutional characteristics, and geographical features are important considerations in an assessment of the current state of its innovation system. Its nine million inhabitants can look back at an extraordinarily successful history of economic and social development. It started the industrialisation process as a relatively poor, resource-based country in the mid-19th century and is now an advanced society with a welfare state widely referred to as the “Swedish model”. On various counts Sweden ranks among the world’s most innovative countries today. It overcame the limitations of a small domestic market through a high degree of internationalisation, not least through the emergence of large Swedish enterprises. Innovation has long been a pillar of Sweden’s development, even before innovation was explicitly considered a key driver of economic growth and social development. As this review will argue, innovation is also the key to Sweden’s future in a globalised world.