The economic potential of lead markets for environmental technologies has served as an important justification for policies to promote environmental innovations in Europe. The emergence of competition from emerging economies has revealed that a domestic lead market is no guarantee for long-term competitive success in an international context. This article reviews the academic literature on lead markets as well as its application in policy. It outlines the theoretical foundations of the concept and main insights obtained with it and relates these to its uses in policy. It then contrasts the lead market approach with the technological innovation systems framework and the multi-level perspective as these are both frequently employed in the transitions literature. The article addresses shortcomings of the current literature and proposes a number of avenues for further development of the concept.