Abstract Understanding the effects of different sources of knowledge acquisition in public organizations has become widely promoted for overcoming sociotechnical challenges through innovation. This study divided the sources of knowledge into external and internal learning mechanisms to assess their divergent effects on incremental and transformative innovations in 82 local governments involved in green and blue infrastructure projects. First, the study tests whether more diverse external sources of knowledge acquisition are more effective in increasing transformative innovation than internal learning mechanisms. The second proposition tests whether internal changes in organizational routines are associated with incremental rather than transformative innovation. Results from mediation analysis using structural equation models confirm that the initial negative effect of external and internal learning mechanisms on innovation can be eliminated, on the one hand, by engaging in more diverse cross-sector collaborations to increase transformative innovations and, on the other hand, by focusing on changing administrative routines to support incremental innovation.