If scholarship is to describe how and under what circumstances cities can function as policy entrepreneurs of sustainability, it must give adequate attention to a key component of cities’ institutional environment: state context. While some states are friendlier to the prospect of cities taking the lead on innovative policies, other states attempt to temper city leadership. Although recent research about urban policy and law has focused on explaining the rise of state preemption, this work lacks a comprehensive view on the role of state-level factors—including legal, political, and ideological factors—that contribute to the broader phenomenon of limits on local autonomy. Two case studies of proposed local plastic bag ordinances are examined: Chicago, whose ordinance succeeded, and Tempe, whose ordinance failed due to state intervention. Situating these cases within their disparate state-level policymaking environments and drawing on qualitative interviews with lawmakers and activists, I analyze conditions on both the state and the local levels for each of these cases. I find that the following conditions related to city-state relationships significantly influence local innovative potential: relative degree of legal autonomy versus legal dependence; relative degree of political facility versus political susceptibility; and relative degree of ideological alignment versus ideological conflict. Using these findings, I develop a theoretical framework for understanding the state-level conditions that empower local policy innovation versus those that limit it. I conclude by discussing the extent to which these findings can be generalized to describe other power disputes among states and cities.