This article examines innovation in micro- and small firms in incubation in Portugal. The research set out to identify patterns of innovative activity toward a sustainable development. A conceptual study was developed, based on the literature and empirical studies, to help understanding of the factors determining innovation in small businesses in incubation facilities. Two conclusions can be drawn from the findings. On the one hand, businesses in incubation units see innovation as an essential, continuing activity with interrelated dimensions. These firms tend to introduce new products, innovate in processes and implement changes in the organization and exploration of new markets. On the other hand the research showed that some areas of innovation depend on the type of origin of the firm, and its size. Key Words: Determinants of innovation, Small firms, Business incubators and Sustainable environment.