Innovation is one of the five drivers of productivity growth alongside skills, investment, enterprise and competition”(DTI, 2007, p. iii.). Tourism is no exception to this. In fact, it is a general opinion that the competitiveness of tourism enterprises to a great extent depends upon their innovation activity. On the other hand and to our surprise, in tourism the research on innovation has so far received poor attention from scholars, especially in the field of empirical research. This article aims at filling that gap. It presents results from an empirical study of innovation activity carried out during the spring/summer 2010 in the hotel sector in Croatia. Due to the problem of empirical measurement of innovation and the specific characteristics of hotel sector, the Community Innovation Survey IV questionnaire design was used and adapted for this purpose. The results suggest that Croatian hotels can be portrayed as only moderately innovative and with different innovation activity according to innovation type and newness. Furthermore, the relationship between the innovation acitivty and hotel performance is investigated. Based upon the research results, managerial implications are given.