Awareness of the importance of innovation in the public sector is increasing. It should create added public value to the citizens and the society. Public sector innovation is a challenge, but it is also increasingly recognized as a solution to growing budgetary pressures. The paper explores the implementation of innovation in public services at the local level in Croatia. Most of the research conducted so far explores the role of the private sector in the implementation of innovation in the public sector. The objective of this paper is to analyse results of a survey that has been conducted on a sample of representatives of local and regional government in Croatia (big cities and counties) and representatives of local action groups (LAGs) and local/regional development agencies (LRDAs) to examine the ability of Croatian local and regional public sector to innovate and identify the barriers that may hinder the process of introduction and implementation of this innovation. It, thus, explores the main barriers for the implementation of innovative activities at the local level from the perspective of different local actors. The results show that three factors that hinder the process of introducing innovation into the Croatian public sector are competence-related obstacles, bureaucratic barriers, and funding difficulties.