Developing a sustainable form of industry based on green technology will require radical technological innovation by the private sector. Stimulating innovation in green technology through public policy requires an understanding of technology, the innovation process, and how policy affects innovation of firms. This article explores how to design public policy measures to stimulate green technology innovation. The potential of current environmental policy measures to stimulate green technology innovation is assessed. Opportunities are identified to improve our understanding of the innovation process, to use policy mechanisms to more effectively stimulate green technology development, and to direct the trajectories of key environmental technologies.