Custom boat building in New Zealand is a globally competing industry comprising a densely interconnected community of small and medium‐sized enterprises. Innovation in product and production processes is an essential feature in the industry’s success. This article investigates innovation and interdependencies in the New Zealand boat‐building industry and explores the notion that it is an example of an innovative regional milieu. The study includes a benchmark survey of the industry completed in 1998, which evaluates the sources of information and innovation, as well as a series of intensive interviews with leading firms to ascertain the characteristics of innovation. The peculiar cultural and social factors of New Zealand – and especially of Auckland, where the industry is spatially clustered – are found to have been significant in the growth of the industry. Furthermore, the contemporary prominence of sports and recreational boating has facilitated the industry’s recent growth and exporting.