In this paper the authors Jacques Pelkmans, PhD, and Andrea Renda, PhD, from Centre for European Policy Studies – CEPS, Brussels, Belgium analyse the ambiguous and complex relationship between (EU) regulation and innovation in the economy, and discuss the innovation-enhancing potential of certain regulatory approaches as well as factors that tend to reduce incentives to innovate. They adopt an ‘ecosystem’ approach to both regulation and innovation and study the interactions between the two ecosystems. This general analysis and survey are complemented by seven case studies of EU regulation enabling and disabling innovation, two horizontal and five sectoral ones. Their findings show that regulation can at times be a powerful stimulus to innovation and that the EU regulation matters at all stages of the innovation process. More prescriptive regulation tends to hamper innovative activity, whereas the more flexible EU regulation tends to stimulate it. The trends over the past thirty years show the significant transformation of the nature as well as improvement of the quality of EU regulation, largely in the deepened internal market, which tend to have a favourable and lasting effect on the rate of innovation in the EU.