The need to understand innovation in public sector environments is growing. There is also a need to build theory, test it empirically and compare across jurisdictions. This article aims to understand the factors that have an impact on innovation capacity. It examines the self-rated innovation capacity of three European city governments – Barcelona, Copenhagen and Rotterdam – in regard to innovation drivers (structures, processes and contextual factors), external networking (levels of communication outside the municipality) and leadership qualities. Results from an online survey of senior administrators in the cities (n = 323) was used to empirically analyse the relationships between these using a structural equation model. Leadership has a stronger effect than innovation drivers and external networking on self-rated innovation capacity for these three city governments. Points for practitioners: Public sector innovation is a very important topic for public managers as the expectations on government agencies increase. Innovation capacity is related to innovation drivers and barriers, the amount of contact that individuals have with others outside their organization, and leadership. This empirical study of three cities shows that leadership has a bigger effect on innovation capacity than the structures, processes and contextual factors that drive innovation, as well as the amount of external contact that public managers have outside their organizations. In addition, for Barcelona and Copenhagen, the network governance and transformational types have the biggest effect on innovation, while for Rotterdam, it is the entrepreneurial type followed by the network governance type.