This study seeks to examine the relationship between regulation, incentives and government policy to R&D (research and development) engineers' innovative behaviour in Malaysia biotechnology SMEs. This research is empirical study where survey data was drawn from 218 R&D engineers in biotechnology SMEs in Malaysia. The data were analysed using SmartPLS which is Structural Equation Modelling (SEM) tool. The result unfolds that government policy is positively and signifcantly associated with innovative behaviour. Nevertheless, regulation was found signifcant to innovative behaviour but demonstrates negative magnitude. On the other hand, incentives was insignifcant to innovative behaviour. This in turn suggests that government policy is critical to foster innovative behaviour whereby the regulation enforcement that indicates disequilibrium possess by higher compliance cost be a disincentive for the R&D engineers to act innovatively. Contradict to previous studies, the insignifcant relationship between incentives and individual innovative behaviour, possibly influence by lack of coordination, monitoring and vetting system with regards to the incentives distribution.