How does the informal economy innovate? Innovation depends, in part, on the generation and use of distinct types of knowledge. Yet, very little is known on the use of knowledge within the informal economy. Focusing on the micro-scale of informal family businesses, this article documents the case of a recyclables shop in Mexico City, and explores how knowledge is used to develop innovative practices. This case is atypical, at least with respect to similar shops in its neighbourhood, as innovation results from the use of both tacit and explicit knowledge. This article reflects on the interplay of both types of knowledge and the implications for fostering innovation in the informal economy.