In this paper, a study is presented in which engineering students at a Danish university developed Continuous Improvement (CI) and innovation capabilities through action research and experiential learning methods. The paper begins with a brief overview of the literature on CI and innovation, followed by an account of how the students designed and implemented solutions to self-identified problems within their educational program using the principles of CI, and how these learning activities facilitated the development of basic innovation capabilities. The paper concludes with insights regarding how such an innovative design of teaching methods based on learning-by-doing may not only support the development of CI and innovation in engineering students, which is increasingly demanded by industry, but also represent a way in which to enhance sustainability and innovation of the education itself. (Contains 1 table.)