Businesses, especially those in urban areas, rely on innovation as a crucible of growth. Therefore, innovation is central to a business’s success. A transformational leader spurs their employees’ capability and efficacy. As a result, employees feel valued by the company, which encourages them to be innovative in the workplace. Thus, they can be inventive without fearing a reprimand by superiors. We argue that psychological empowerment indirectly influences the relationship between transformational leadership and innovative work behavior. This study surveyed 292 employees from different organizational types (e.g., private sector and public sector) in urban areas. The results of the study’s moderated mediation analysis demonstrate that innovative work behavior is the outcome of psychological empowerment through transformational leadership. Therefore, a transformational leader tends to empower their employees psychologically, which may improve employees’ ability to be more innovative at work. Furthermore, organizational types play a role in influencing employees’ psychological empowerment.