Italian Industrial District (IID) has experienced the evolution process from academic concept to statistical unit, then to industrial space policy (ISP). As a policy, the IID supports the development of underdeveloped regions and promotes the competitiveness of local economy by promoting the agglomeration development of traditional small and medium-sized enterprises (SMEs) and supporting the development of “made in Italy”, especially the development of “traditional Italian manufacturing”, which has become an important supporting factor of the Third Italian phenomenon. Through historical review, policy interpretation, and spatial analysis of IIDs and SMEs in the country and Veneto region, the paper points out that the traditional SMEs play an important role in promoting employment and improving the economic development in underdeveloped areas, so it is of great practical significance to support them through industrial district policies; the selection of industrial district and the determination of leading industries should follow the policy orientation, however, in terms of location selection of industrial district, we should not only follow the policy orientation of supporting underdeveloped areas, but also avoid the remote mountainous areas and pay more attention to the convenience of regional transportation, so as to promote the more efficient development and enhance the competitiveness of the industrial district; and in the industrial district, more comprehensive measures should be taken to improve the operating environment for the development of enterprises, and to promote the agglomeration development of enterprises. On the context of current macroeconomy, by offering the case of IIDs, we hope that we could not only focus on the efficiency of our industry but also pay more attention on the less developed regions and to support the agglomeration of traditional manufacturing SMEs.