Stimulating defence innovation has become a strategic priority, especially following Russia’s full-scale invasion of Ukraine in 2022. European and transatlantic initiatives now aim to accelerate innovation cycles and broaden the participation of Small and Medium-sized Enterprises (SMEs) within the defence innovation ecosystem. Demonstrator and prototype activities have emerged as key mechanisms to de-risk emerging technologies, foster cross-sector collaboration, and compress development timelines. This article analyses Swedish initiatives, particularly the Ministry of Defence’s Defence Innovation Strategy and the Civil-Military Innovation Programme (CMIP), within the wider context of EU and NATO frameworks. It draws on document analysis, direct observation, and interviews with policymakers, procurement officials, incubator managers, and SMEs. Findings indicate that despite new policies, Swedish defence innovation remains constrained by institutional inertia, fragmented procurement structures, and limited SME integration. The study argues that demonstrator and prototype activities must be embedded within concept-driven innovation frameworks, supported by competitive procurement reforms, dual-use governance, and dedicated incubation platforms. Such integration would help build the dynamic capabilities needed to accelerate defence innovation while ensuring technological sustainability, strategic coherence, and long-term resilience.