In the new global economy centered on knowledge, innovation and environmental protection, most governments acknowledge nowadays the strategic importance of the environmental goods and services industry (or eco-industry). Yet, the dynamics which underlies innovation and knowledge creation in this booming sector is still poorly understood. This chapter first offers a brief outlook of the eco-industry, its history, scope and recent trends. It next argues that green innovations nowadays result from a Smithian process of broader and broader division of labor. Public policies and managerial approaches that might foster this development are then briefly discussed.