This study aims to examine the mediating effect of employee optimism on the relationship between transformational leadership and innovative capability in the context of batik small and medium en-terprises (SMEs) in Indonesia. This study applied the convenience sampling method to survey 186 employees at batik SMEs in Central Java Indonesia through a self-administrated questionnaire. Data were analyzed using smart PLS v.3 to test the hypotheses. The result show that optimism partially mediated the idealized influence of transformational leader behavior on innovative capability. In ad-dition, optimism fully mediated the individualized consideration of transformational leader behavior on innovative capability. This present study provides both empirical and theoretical contribution fo-cusing on leader behavior, employee optimism and innovative capability.