This paper examines the relationship between innovation activity and firm size in the South African context. Based on data from the National Innovation Survey (2002-2004) the paper looks in particular at the nature of innovation by small, medium and micro-sized enterprises (SMMEs). The main finding is that the innovation rate of SMMEs is relatively high, with small enterprises reporting the highest innovation rate. A limited dependent variable regression, however, determines a negative statistically significant relationship between the probability to innovate and firm size. SMMEs are therefore not more innovative than large enterprises in South Africa. This paper identifies innovative entrepreneurs and micro enterprises as important foci for entrepreneurship and innovation policy.