Innovation is widely seen as the solution to achieve sustainable development in the blue economy. Innovation for sustainability or sustainable-oriented innovation enables well-established economic sectors to improve environmental performance and enhance their competitiveness and opens a window of opportunity for innovative products and services in emerging areas of economic activity. Despite this imperative, there is yet a limited understanding of the landscape shaping sustainability-oriented innovation in blue economy sectors. The present chapter focuses on small island territories because these need to be “smart” and agile in the selection of areas for innovation specialization and in identifying promising innovation opportunities and sectors for economic development. Based on an analysis of European-funded projects in areas of the blue economy, the study characterizes the blue economy innovation ecosystem in the Western Mediterranean Basin island territories. It assesses the portfolio of sustainability-oriented innovation projects implemented in blue economy industries, the actors and the priority themes, and sectors addressed. The aim is to explore the technology and innovation pathways that contribute toward sustainability of blue economy sectors. There are implications for policy and for evaluating how strategic policy priorities translate into opportunities for sustainability-oriented innovation in island territories and the capabilities and competencies needed to support this.