Abstract. A team exercise was designed for teaching innovation for an online course. The exercise does not require a high level of technology. It can be used at undergraduate and postgraduate levels, for both online and on-campus learning environments, and for a small class as well as a large class (>250 students). In the exercise, online external students will be divided into police and prisoner groups whereby they are required to use different resources (i.e. cars, buses, taxis, trains and helicopters) for catching the prisoners or for escaping from the police on a virtual map. The online capacity of the exercise allows students from domestic and international, metropolitan and regional areas to engage and interact and thus learn from each other. The team exercise helped to create an innovative online learning environment that was active, cooperative and engaging to enhance the quality of student experiences. This was evidenced by the students' behavioral, emotional and cognitive engagement in the course. The exercise is particularly useful for teaching innovation and teamwork (as well as for strategic management courses) as students will learn critical skills such as knowledge creation, team learning, people management, resource and time management, interpersonal and negotiation skills, and strategic planning. A reflective report is then used as an assessment with the objective of helping students to learn from their practical experience from the online team exercise. The exercise and report help all students to make connections between what they have been taught in theory and what they need to practice, and thereby students will be able to apply knowledge and skills to demonstrate autonomy, well-developed judgement and responsibility particularly in contexts that require self-directed work and learning.