Regional development can be seen as improving the services that are produced in, and available to, the region: a service innovation ecosystem should support this as an ongoing process, upgrading such facilities as transport in the region. Living labs, involving the participation of government, research institutes, firms and citizens, are one strategy for establishing such ecosystems This study critically reviews concepts of service innovation and innovation ecosystems, highlighting gaps in existing literature from a service ecosystem perspective; it presents the results of a qualitative research study, involving in-depth interviews with experts and panel discussions, concerning two living labs. The study contributes a conceptual framework for a more holistic understanding of service innovation and ecosystems, and examines the practical challenges involved in promoting service innovation. The paper concludes by discussing how government and industry stakeholders may improve the effectiveness of service innovation efforts for regional development and firms’ innovation performance.