Innovation is ever more critical for sustainable business performance in a globally changing economic and social context. Small to medium enterprises (SMEs) are arguably enabled to innovate through their potential for rapid adjustment and therefore make substantial contribution to the wealth of nations. Though leadership and organizational climate have been identified as playing a key role in innovation, little is known about whether such influence plays out in SMEs in Vietnam. The paper presents findings from semi- structured interviews conducted with 20 CEOs of SMEs in the tourism sector in Vietnam. The aim of the study was to explore how leaders and staff experience the organizational climate to enhance innovation in their firms. All interviews were transcribed and thematic analysis of the interview data undertaken. The findings show that SMEs leaders in the tourism sector tend to shape an organizational climate that provides autonomy and supports innovation. They also tend to use daily interaction-based practices to manage innovative behaviours of employees and develop reward systems to foster innovation in their organizations. The results have theoretical and applied implications for developing and managing innovative SME firms in Vietnam.