Innovation research has predominantly focused on hierarchically organized firms competing within single markets. Recently, however, researchers have debated over whether the increasing use of project networks within and across industries promotes or stifles innovation. This paper discusses a model based on crossnational diffusion data from three technological innovations in three-dimensional computer-aided design (3D CAD) and related implementation data from 82 firms. From the data we induce a set of constructs that form the basis of a two-stage model for understanding innovation in project networks. In the first stage of the model the alignment of an innovation to the existing allocation of work in a project network is ascertained. In the second stage, the implementation success and diffusion outcomes for innovations misaligned with the allocation of work are governed by the relational stability, accrual of interests, boundary permeability, and existence of an agent for project network change. In developing this integrative, two-stage model we resolve the contradiction in the academic literature regarding the degree to which project network dynamics can promote or stifle innovation.