This chapter presents an analysis of the most important aspects of the Italian economy in the midst of the current economic crisis and discusses the country’s past and current approach to industrial policy (IP). Our focus is on the characteristics and evolution of the manufacturing sector and on how this has infl uenced the country’s competitiveness and structural change dynamics. We made this choice because, although other aspects of the economy are also important, we believe that the current diffi culties of the Italian economy are deeply rooted in the dynamics of the industrial sector. We supplement this analysis with a discussion on the historical and current characteristics of IP in Italy and how these should be modifi ed to give IP a positive role in helping the economy to overcome the current economic crisis.