This paper investigates student prerequisites for innovation in education. Engineering design teams have been studied extensively over the last few decades, providing insights in a wide variety of areas. Building on how new knowledge is interpreted and disseminated as part of a design challenge in relatively large design teams involves a process perspective with a concern for project management, collaborative design, creativity and resource allocation. To clarify these issues, two student teams engaged in year-long engineering design Masters level project courses were studied. The case studies highlight activities that contributed to radical new outputs and a total of three patent applications. The importance of outcome-based project learning is frequently cited, but there is little understanding of the factors that spur early-phase innovation. This paper shows that early-phase innovation is strongly encouraged by active learning and forms of testing in the autonomous product development cycle. To increase student autonomy, it will be necessary to increase the extent to which the functionality of existing knowledge is put into practice.