In Serbia, as well as in all the countries in transition, the process of political and economic transition is based on the development of the private sector and entrepreneurship. This also implies creating a favourable business environment for the development of SMEs. The purpose of this chapter is to contribute to our understanding of the private sector and SMEs development in Serbia, as well as to identify their weakness and improvements within the considered period of time. The chapter includes an analysis of various aspects of private sector development as follows: the obstacles to the development, the role of innovation in the private sector growth and the analysis of the role of the private sector in revitalizing Serbia’s economy during the last decade. Authors also explain some of the factors which must be taken into account when considering policies for the development of the private sector in Serbia and possible routes forward.