The importance of chemical employment over the totalindustrial employment in Italy declined sharply from 4.5%to 2.6% in the 1971-2009 period, and some studiesconcluded that the chemical industry in Italy has almostdisappeared and that it has no future. This paper showsthat the decline of the Italian chemical industry ismainly due to the disappearance of large companiesoperating in basic chemicals, while a new configuration isemerging for this industry based on SMEs having a goodcompetitive advantage in the specialty chemicals. Thecompetitive advantage of Italian firms is mainly due toniche specialisation, customized products, and flexibleorganisation.The paper considers the chemical industry as an enablingfactor to foster innovation in the other manufacturingsectors: thanks to chemistry, the Italian SMEs in textile,furniture, ceramics, and other fashion-related sectors(jewels, eyeglasses, shoes, etc.) are able to develop newproducts. Innovation policy should therefore consider thelinks within the filières and supply chains in order tosupport the diffusion of innovation throughout the wholeindustrial system.