Purpose – This paper aims to examine the role of innovation strategy on economic sustainability in the hospitality industry.The focus is on the tourist hotels in Tanzania. Design/methodology/approach – The study uses survey of tourist hotels (n = 346) in the country’s Coastal and Northern tourist circuits. Structural equation modelling was used to test the hypothesized relationship. Findings – The findingsindicatethatinnovationstrategyintheindustryemphasizesonstandardizedservices; service quality; product introduction readiness and lastly on technology usage. Innovation strategy positively relates with the economic sustainability performance. Specifically, the strategy promotes hotels’ sustainable growth,resource management long-term profitability,customer satisfaction and value chain management. Practical implications – The findings elucidate on how sustainability can be integrated with core business strategies, to make corporate sustainability a reality. The findings also enlighten on the need for hotels to focus on innovation strategy to benefit from sustainability related opportunities. Moreover, the ability to understand customers’ needs and develop innovative services that offer social and environmental solutions can have an importantimplicationonlong-termeconomicsuccess. Originality/value – Most studies in the hospitality industry focus on innovative strategies geared towards environmental management. Hence, understanding how innovative strategy influences long-term economic sustainability as a core focus of any business endeavour is important. This study contributes to that body of knowledge as it uses innovation strategy based on Schumpeterian entrepreneurial approach in understanding the role of innovation on economic sustainability.SIDA-Tourism