Research regarding the recruitment of principals is well established in scholarly literature. However, scant research has been undertaken to scrutinise the perspectives of principals in the New South Wales Department of Education (NSWDE) regarding their merit selection practice and the extent to which school-based leadership recruitment decisions are determined objectively and in accordance with meritocratic ideals. Consequently, this paper reports on an Australian study undertaken in the state of New South Wales (NSW) to ascertain the extent to which government school principals employed by the NSWDE, favour internal selection (the promotion of teachers from within their own school) when merit-selecting deputy principals, assistant principals and head teachers. The study draws upon interviews with principals concerning their approach to the merit selection of school leaders, and the analysis of data from an online survey of principals to determine the extent to which they utilised their school's 'internal labour market' to assemble leadership cadres. Based on the findings of this investigation, it is argued that the NSWDE merit selection process disadvantages external applicants seeking school leadership positions, thereby depriving many schools of quality leaders who have the potential to drive both educational change and innovation.