Ethanol has recently been of great interest worldwide because it is a viable economic alternative to petroleum products and it is a renewable source of energy that mitigates the emission of greenhouse gases. Brazilian bioethanol from sugarcane is the most successful case at the world level because of its low cost and low level of greenhouse gas emissions. Brazil's success with sugarcane cannot be understood as based solely on a natural comparative advantage, but as a result of efforts that culminated in a positive trajectory of technological learning, relying mostly on incremental innovations. The purpose of this article is to analyze the key aspects of the innovation system built around the Brazilian sugarcane industry. It is based on the national innovation systems approach according to which innovation results from the interaction of different institutional actors. Institutional arrangements are analyzed as the basis for the innovative process, in particular R&D and the innovation policies and strategies of the main players in the sugarcane sector, including sugar and ethanol mills, industrial goods suppliers, public and private research institutions, and governmental agencies. (C) 2010 Elsevier Ltd. All rights reserved.