In many of British Columbias rural and remote communities, the decline of the resource-extraction industries that have traditionally formed their economic backbone, degradation of the local natural resources, and vulnerability to global economic pressures have caused considerable social and economic distress. Enabling innovation and sustainable economic diversification in resource-based regions is crucial to community survival, adaptation and prosperity. This paper explores the concept of and success factors associated with community-based innovation as they apply to the rural areas of northern Vancouver Island. It examines one specific innovative project, the Integrated Non-Timber Forest Products (NTFP) Demonstration Project in the Regional District of Mount Waddington. Drawing on the theory and literature from social capital, innovation, and community economic development, the research explores how collaboration among local agents and external actors can enhance a rural communitys capacity for innovation and sustainable development.