Creating an enabling environment for social entrepreneurship in tackling complex socio‐economic challenges is at the forefront of government policy agendas globally. Although several policy mechanisms have been proposed to this end, whether and to what extent those policy mechanisms may (re)shape the social entrepreneurship environments have rarely been explored. By examining the Social Innovation and Entrepreneurship Development Fund (SIE Fund), a recent policy project aimed at fostering social innovation in Hong Kong, this article presents a rare empirical exploration to illustrate how public policies can potentially drive social innovation. We explore first the impact of the SIE Fund in fostering innovation among its funded social enterprises, and second, how the SIE Fund may have influenced Hong Kong's social entrepreneurship environment. Results show that the projects under the SIE Fund exhibit characteristics distinct from the social enterprises prior to the inception of the SIE Fund. In addition, evidence of innovations in terms of product, process, marketing, and innovation in developing new or improved social practices were also identified. This study illustrates how specific public policy mechanisms may potentially facilitate the diversification, inclusion, innovation, and expansion of the social entrepreneurship environment. Findings carry substantial policy implications, in particular to neighbouring East Asian societies typically characterized by a strong government, and face similar structural, demographic and socio‐economic challenges that necessitate innovative solutions.