In recent years cluster policy has become a central component of regional economic development strategy across many European economies. However, concerns are now emerging over the content and quality of some of these initiatives. Given the prevalence of the approach, these apprehensions are non‐trivial and have significant implications with regard to the value and contribution of regional economic development. Here we examine the extent to which weaknesses in the theoretical and methodological underpinnings of the cluster approach may have acted in combination with pressures generated by the ‘congested state’ to produce a number of difficulties. The essay explores the nature, challenges and weaknesses of cluster policy in the context of the demands created by multi‐level and multi‐actor governance frameworks. We conclude that, irrespective of whether cluster policy is the appropriate choice as an economic development tool in any particular regional or economic circumstance, its selection always necessitates prior consideration of the institutional capacity needed to meet the governance challenges that it creates.