Researchers have independently studied the roles of culture, creativity, and innovation in the domain of handicrafts. In the present study, we aimed to understand the linkages between the three constructs in the same sector. We based our research background on the theory of cultural embeddedness and the componential view of creativity. To this end, we employed a multiple-case-study design of two handicraft forms in Odisha and one handicraft form in Maharashtra, India. The data consist of focus group discussions (FGDs) (n = 49), observations, and documentational evidence. The findings were a process model of the creativity and innovation in the handicraft sector that began with the cultural backdrop that influences creativity, which, in turn, influences innovation. We observed innovation influences the marketability, and we found that it has a reverse relationship with creativity. We found that cultural embeddedness and cultural clustering moderate the relationship between creativity and innovation. The study has implications for theory and policy.