Research Question: The paper investigated a relationship between innovation and transformational/transactional leadership, as well as the impact of these two leadership styles on innovation. Motivation: As there are small number of studies that have examined the impact of transformational and transactional leadership on innovations within the hospitality industry and in Serbia, the need for investigation is imposed. The paper draws on methodology and works of Bass and Avolio (1997), Hogan et al. (2011) and Nasution et al. (2011) which are, in this paper, applied to the context of hotel industry. The results of this study will expand theory in this field and it could be used as a significant practical guide for hotel management in order to achieve business improvement. Idea: In today's turbulent business environment the ability of the organization to innovate been the decisive factor of surviving, creating and maintaining competitive advantage on the market and also a critical factor in improving what the organization does. The aim of this research is to determine the predictive effect of transformational and transactional leadership on innovations within hotel industry in Serbia. Data: The study included 512 employees in 57 tree, four and five-star hotels in Serbia. Convenient sampling method was applied. The questionnaire used measured the attitude of the employees towards innovations and transformational and transactional leadership, as well as socio-demographic variables Tools: Data was prepared and analysed using statistical software IBM SPSS 24.0. Statistical data processing methods used in this paper are descriptive statistics, the reliability of the instrument, correlation and regression analysis. Findings: The research results show that both transformational and transactional leadership predict innovations, where transformational leadership style is a stronger predictor and better correlate with innovations. The results show that transactional leaders may also encourage innovativeness, but within the frames of the tasks already set. They can also motivate the employees by using different methods such as stimulative rewards, but that they are primarily focused on task execution. Contribution: The results can be used in making future decisions, measures and standards related to human resources management, as well as the development and promotion of innovative activities in hotels.