Efficiency and value creation for citizens, communities, and societies are becoming increasingly important for the public sector. Public sector is continuously seeking for innovative ways to create and provide services, and despite acknowledging the key role of knowledge in innovation processes, the relationship between publicly available knowledge and innovation is still poorly understood. A more unified view of OI and the public sector originated knowledge ecosystem, alongside public-private collaboration, is crucial. The private sector’s creation of open knowledge-based innovations, such as products or services, for private markets appears to have minimal influence. To achieve successful knowledge-based innovation, functional systems are crucial for addressing the identified barriers within public knowledge and innovation. This paper investigates the potential of public sector originated knowledge to drive open innovation in partnership with public and private organizations. The potential to gather and use openly available knowledge is now greater than ever due to the possibilities provided by AI. Challenges in innovation are widely explored in existing research. Future studies should focus on developing models for successful open knowledge initiatives, including strategic planning (value realization and resource-based strategic analysis), technical enablers (new digital technologies as AI), sharing platforms (design of public knowledge sources with appropriate APIs), enabling functional public knowledge ecosystems, and legal frameworks to support open public knowledge sharing and utilization (e.g., knowledge privacy). Research needs to consider social aspects alongside technological and business ones. This includes management models for public knowledge and innovation, knowledge processes and its management to support OI, and organizational cultures that reflect experiences of control or safety, risk management, attitudes and engagement in OI processes. To better comprehend how the private sector can benefit from public knowledge, additional empirical studies are crucial.