Entrepreneurial innovators have been agents of transformation throughout history, but they have not had the scope to perform this role in the environmental domain. We propose an explanatory model that depicts the processes that give rise to innovation by new entrant firms. We apply this model to evidence from a study of problems faced by 73 environmental ventures. We present supporting evidence from case studies that demonstrate how entrepreneurial innovation is brought about by problem solving practices under resource constraint and decision-making flexibility. We point to the value of promoting technological options and the diversity and complementarities to which new entrants give rise.