The accelerating pace of technological change and the increasing volatility of security environments have exposed fundamental limitations in traditional innovation policy mechanisms within the defense sector. This study aims to design an agile innovation policy framework tailored to defense contexts and adopts a qualitative approach grounded in constructivist Grounded Theory to develop a model rooted in empirical realities. Using open, axial, and selective coding, the study generated a multilayered model that elucidates the dynamics shaping agile innovation policy. Findings indicate that the central challenge to defense innovation does not stem from technological shortcomings or a lack of capable actors, but rather from a misalignment between the tempo of policy processes and the rapid evolution of technologies and threats. The analysis identified three core capabilities as foundational to agile innovation: early detection and interpretation of environmental shifts, rapid translation of operational needs into actionable technological missions, and continuous reconfiguration of policy tools and acquisition pathways based on real-world feedback. The results further demonstrate that enabling agility requires a flexible and modular institutional architecture, diversified acquisition pathways, the availability of small-scale experimental environments, phased budgeting mechanisms, and an adaptable portfolio of policy instruments.