Governments in a number of developed countries have repositioned their public research agencies to support economic objectives and to alleviate fiscal pressures. This has been accomplished through various strategies, including private-public partnerships and purchaser-provider arrangements. In the 1980s, the Australian Government introduced external earnings targets of up to 30% per annum for its public research agencies, as a means of strengthening their responsiveness to national economic needs. A case study of the Commonwealth Scientific and Industrial Research Organization is presented in this article to discuss the impacts of the external earnings policy. Impacts on the type of research being undertaken by public research agencies, the quality of public research-industry relationships, the nature of scientists' work and the role of stakeholders are considered. A number of dilemmas are raised relating to the role of public scientific research.