Research and development service firms (RDSFs), a subsector of knowledge-intensive business services (KIBS), provide contract R&D services to third parties for payment. They are a major generator of new technological knowledge serving manufacturing and non-manufacturing industries. Their innovation activities are in the up-stream of the knowledge creation value chain. This explorative study focuses on R&D service firms and their innovation activities. We have adopted a qualitative research design seeking to address the need to strengthen theory-building on service innovation, and in particular to extend the limited empirical evidence on RDSFs innovation. The literature on innovation in services and KIBS constitutes a strong theoretical foundation of this study. It provides the conceptual tools upon which we develop a working definition of RDSFs and ground our analysis. We examine the long-term development of the UK's R&D Service Sector using secondary data. This builds a 'real-life context' for case studies on innovation in RDSFs. Qualitative research was conducted through semi-structured interviews with 32 firms in the UK. Analysis revealed the heterogeneous nature of these firms by identifying four main business models. Moreover, our findings point towards a clearly defined typology of RDSFs based on a combination of innovation drivers and outcomes. Four fundamentally different types of RDSFs can be identified: Technology-based innovation exploiters, Science-focused innovation explorers, Client-led innovation integrators, and Open innovation translators. This thesis contributes to the research on the supply side of R&D outsourcing by elaborating the development, business and innovation activities of RDSFs. It also contributes to understanding innovation in specific KIBS sub-sector by providing empirical evidence on the innovation processes of RDSFs.