Industrial clusters are deemed to be critical for industrial development and local economic growth. These concentrations include related industries which may collaborate as well as compete with each other. One of the factors behind the success of clusters is the combination of a large number of companies, of various sizes, working along many stages of production. The availability of different suppliers, human resources from competing companies or local universities as well as customers promotes the growth of a cluster. However, in the last two decades, many industrial districts have become more specialized in particular stages of production. Considering the above factors for cluster success, important questions rise: what is the danger of specialization? Exactly how narrow a stage of production is too narrow for cluster sustainability? This paper examines an innovation based cluster, the biotechnology industry in Rehovot, Israel.* *The city of Rehovot is located inland, half an hour from Tel Aviv. In the city we can find the Weitzman Institute and the Hebrew University’s agriculture department. In this paper the Rehovot cluster will include also the firms located in “Kiryat Weizmann”, which was built in Nes Tziona, Rehovot's smaller neighbour. The two clusters are closely located, and are less than five minutes apart. This industrial district, which is the largest biotechnology cluster in Israel, is based on innovative companies, many spun out of university research. This paper used both quantitative and qualitative research methods. The dynamic of the industry was investigated using qualitative methods through field research including site visits and interviews. This paper argues that while innovation can be the base of an industry, and R&D is the base of several successful industrial districts around the world, it may not be sufficient for local economic growth and sustainability.