Open innovation is built on the core principles of interactions, interdependence and exchange of knowledge. Clusters are believed to support organisations’ efforts to explore and source external knowledge, commercialise internal innovations and cause externalities through commercial activities. Early research on the innovation capabilities of regional clusters in Europe provides limited understandings of these cluster-based effects through which open innovation is fostered. This study investigates the role of clusters on open innovation practices relating to exploration and exploitation of external knowledge, knowledge sharing, acquisition and sale of IP rights of Indian IT organisations. The results reveal that organisations within a close geographic proximity actively participate in inbound and outbound activities and perform better in terms of innovation performance compared to the organisations outside the cluster. The findings are relevant to both the IT clusters and the IT innovation literature as this study sheds light on the role of clusters in improving an organisation’s innovation capabilities through open innovation.