In recent years, the EU and several of its member states have adopted strategies in support of a renewable resource-based bioeconomy. It is viewed as a promising approach for increasing the sustainability of economic processes and products, with expected contributions to a range of policy aims. However, by increasing the demand for bio-based resources, bioeconomy concepts also impose additional pressures on ecosystems. In limiting these pressures, innovations regarding the use of biogenic and non-biogenic renewable resources play an important role. A functioning innovation system for the bioeconomy must enable immature renewable resource-based technologies to progress down the learning curve, to eventually reach competitiveness with fossil resource substitutes; second, innovation efforts need to be steered towards bioeconomy pathways with favourable environmental characteristics. Focussing on the case of the German wood-based bioeconomy, this contribution examines the role that policies can play in shaping such an innovation system. First, we review normative recommendations from innovation economics and the innovation systems literature. Based on this, we identify functional failures in the case study’s innovation system, and discuss policy implications. Notably, the transition towards a bioeconomy is characterised by a high degree of uncertainty and complexity, making the design of demand-pull policies particularly challenging. To conclude, we derive policy recommendations for supporting a sustainability-oriented innovation system for the German wood-based bioeconomy.