From a knowledge-based perspective, an industrial district operates as a meta-context with a high density of knowledge production sites (firm contexts), and a high density of knowledge transfer channels that in their turn feed the processes of knowledge creation. We argue that observation of new products aimed to their imitation, inter-firm mobility of human resources, intra-district relations are frequent and effective mechanisms of knowledge transfer because of an high level of cognitive overlapping among district firms. Linked with cognitive combination, the same mechanisms fill an important role in the generation of innovations and the evolution of industrial districts. These systems are also meta-contexts with a high density of incubators (firm contexts) of new entrepreneurship. In fact, the origin of new firms frequently comes through spin-offs, that may be considered a specific form of knowledge transfer and combination. The paper analyses the knowledge dynamics inside districts as well as the cognitive permeability between a district and its external environment. The effects of globalisation on industrial districts are also considered.