Challenge-Driven Innovation (CDI) is a program launched by the Swedish innovation agency Vinnova in April 2011. The aim of the CDI program is to fund projects that develop sustainable solutions that tackle current societal challenges. These challenges require innovative solutions that go beyond traditional research fields and ‘silo-thinking’. Instead, cross-sectoral cooperation between a range of public and private stakeholders is promoted and emphasis is put on a more holistic approach to innovation, also including social and organizational aspects. Furthermore, challenges are understood not just as a threat, but rather also as an opportunity for economic growth. Therefore, the program has been designed in a way that is believed to promote opportunities for transformative innovations by encouraging demand, challenge and user-driven projects spanning various actors and industries. The here presented innovation history presents the development of the CDI program over time, gives an overview of its built-in mechanisms to foster challenge-driven innovations and discusses its implications for transformative change using empirical evidence from one of the projects funded by the program in the area of forest chemistry.