UCD and Trinity College have announced a research partnership which they say has the potential to develop 300 companies and thousands of jobs.
The heads of both universities say the initiative would drive enterprise and innovation in a time of national crisis.
They hope to increase the number of PhDs by a thousand a year.
The cost of establishing the joint project is €650m over ten years which the universities say will come from a variety of sources including Government and European funding and from the private sector.
The Innovation Academy was announced at a press conference this afternoon by the Taoiseach, Tánaiste, Minister for Finance and Minister for Education.
Taoiseach Brian Cowen said it would attract international interest and establish Ireland as a research base.
He said a special innovation taskforce would help drive the project forward.
The universities say innovation will now become a third pillar of the sector alongside teaching and research.
There were also calls for incentives to encourage philanthropists to invest in education.