The effect of the flow of knowledge on sustainable innovation in project-based firms in project-based industries is the subject of in-depth research in this paper. It studies the simultaneous functioning and effects of knowledge flow mechanisms on sustainable innovation in project-based firms in project-based industries; industries like the construction-, film-, game-, consultancy-, and IT-industry. To this end, a retrospective case study, covering 20 years (1989–2008) of sustainable innovation in the Dutch house-building industry, is conducted. This study finds that bundles of knowledge flow mechanisms stimulate both sustainable innovation creation by small networks of innovative firms that cooperate in demonstration projects, as well as stimulates a limited adoption of some of these created sustainable innovations by networks of larger incumbent firms outside these demonstration projects. Based on this finding the paper proposes a model and related propositions. To scholars it can serve as a basis for future research that further explores and tests the effect of the flow of knowledge on the eco-innovativeness of industries that heavily rely on projects. The findings can also be of benefit for policy and business practitioners in and around project-based industries. To them it can provide a route for getting sustainable innovations applied on a larger scale, from demonstration projects to regular projects.