This paper contributes to the growing literature on knowledge network evolution. It provides an analysis of the role universities play in a network emerging from the joint participation of organizations in R&D projects subsidized by public authorities. In addition to theorizing universities’ effect on network formation processes, the paper includes an empirical study identifying the main drivers behind the formation of the subsidized network of R&D collaboration in the German biotechnology industry. We find that universities strongly shape the evolution of the network in the period 2007–2010. They are clearly central knowledge sources and dominate the network as partners in many R&D projects. While knowledge links among universities are an essential part of the network, universities are also able to connect local firms to inter-regional knowledge networks. Accordingly, subsidies for joint R&D support universities in acting as regional gatekeepers and thereby facilitate local and inter-regional knowledge diffusion. © 2017 The Author(s)