The technological, economic, and social changes of recent years have required governments to adapt to new challenges and growing demands from civil society. In many countries, and at different levels of government, this has led to the creation of innovation labs that aim to promote various modes of innovation within the public sector. This paper analyzes the roles of innovation labs in Latin America, examines the challenges, and compares them to best practices and characteristics that current literature associates with higher levels of innovation in the public sector and in other organizations. Based on a survey of lab directors and the undertaking of two case studies, this paper describes the scope of innovation labs in Latin America and discusses the challenges they face to (i) overcome key management issues, (ii) promote the adoption and scale up of innovation, and (iii) ensure its sustainability. There are four key factors that determine the success of innovation in overcoming these challenges: two of these are of a political and institutional nature, namely leadership support and political networks, while the other two relate to lab methodologies, namely the technical adaptation of innovation and the building of a shared meaning. Additionally, two major differences have been identified between the innovation labs discussed herein and those of other regions, as described in the existing literature: a greater focus on issues of open government and less rigorous testing of innovation, such as randomized experimentation and impact evaluation. Lastly, this study provides the relevant conclusions and recommendations on how to establish innovation labs as effective channels to manage innovation in government, along with its inherent risks, and modernize public administration.