Purpose: Innovation is ever more critical for sustainable business performance in the contemporary, global economic and social context. Small- and medium-sized enterprises (SMEs) are arguably well positioned to innovate through their potential for rapid adjustment. Although leadership and organizational climate have been identified as playing a key role in innovation, little is known about whether such influences play out in SMEs. The aim of this study is to explore how leaders shape the organizational climate of their firms to enhance innovation. Design/methodology/approach: The article presents findings from semi-structured interviews conducted with 20 CEOs of SMEs in the Vietnamese tourism sector. Findings: The findings indicate that SME leaders in the tourism sector influenced an organizational climate that provided for autonomy and supported innovation through a number of leadership approaches. They also used daily interaction-based practices to drive the innovative behaviors of employees and developed reward systems to encourage innovation in their organizations. Research limitations/implications: This study explored leaders' approaches toward developing an organizational climate to stimulate innovation in tourism SMEs. Where leaders share frequent communication and knowledge with their subordinates, they perceive a climate for innovation developments, which stimulates innovation in tourism SMEs. Practical implications: The study provides implications for managers to improve creativity and innovation in firms through the development of reward and incentive systems along with leadership and team development programs. Originality/value: This study describes how different leader approaches affect innovation through orientating the organizational climate and business processes within their firms toward encouraging staff to initiate and try out new ideas.