This chapter explores the role of innovation in the internationalisation process of Australian SMEs in China. Several types of innovation (i.e. product, process, market, organisation, incremental versus radical) are discussed, with a focus on analysing how each type had helped the Australian SMEs to gain their competitive advantage, and whether these innovations were accepted by the Chinese market. The findings of analysing 35 Australian SMEs demonstrate that Australian SMEs have taken various innovative approaches to explore their business advantages in China’s market. It is clear that innovation and internationalisation are closely linked and that SMEs’ internationalisation to China significantly relied on innovation they offered to the Chinese market, but that the implementation of innovation in the Chinese market largely depends on the acceptance of the Chinese towards new ideas and products. Developing strategies to overcome liability of foreignness and conducting appropriate market research on the foreign country’s cultural and institutional conditions are crucial to further advance SMEs’ innovation and internationalisation into the global market. Implications to other SMEs are discussed.