This study aims to explain the formation process of knowledge-based industries in intermediary cities of Razavi Khorasan Province. Employing a qualitative approach based on Strauss and Corbin’s grounded theory methodology, the study examines the experiences of actors involved in knowledge-based industries in the cities of Gonabad, Sabzevar, Kashmar, Quchan, Sarakhs, and Torbat-e Heydarieh. Purposeful sampling was employed, and 27 in-depth interviews were conducted and analyzed through three stages of coding. The findings indicate that the formation of knowledge-based industries in intermediary cities results from the interplay between existing capacities, environmental constraints, and the gradual actions of actors in creating technological pathways. At the level of causal conditions, three components-including the determination to create technological pathways, fragmented and unorganized local capacities, and initial enabling support mechanisms-provide the foundations for initiating knowledge-based activities. Contextual conditions shape a dual environment of opportunities and constraints through local socio-economic capacities and networks on the one hand, and structural and institutional limitations on the other. Intervening conditions, including economic and financial instability, institutional complexities, and market constraints, influence the trajectory and scope of possible actions. In response to these conditions, actors gradually shape their technological pathways through strategies such as institutional navigation and facilitating network-building, strategic flexibility, and redefining their position and creating new possibilities for action. Overall, the findings demonstrate that the formation of knowledge-based industries in intermediary cities is neither the outcome of a fully prepared environment nor merely a consequence of formal interventions. Rather, it is a gradual process through which actors activate existing capacities, establish new linkages, and continuously adapt to uncertain conditions, thereby enabling the emergence of new technological pathways.