The market for nano- and microsatellites is developing rapidly. There is a strong focus on 2D imaging of the Earth’s surface, with limited possibilities to obtain spectral information. More demanding applications, such as monitoring trace gases, aerosols or water quality still require advanced imaging instruments, which are large, heavy and expensive. In recent years TNO has investigated and developed different innovative designs to realize advanced spectrometers for space applications in a more compact and cost-effective manner. This offers multiple advantages: a compact instrument can be flown on a much smaller platform (nano- or microsatellite); a low-cost instrument opens up the possibility to fly multiple instruments in a satellite constellation, improving both global coverage and temporal sampling (e.g. to study diurnal processes); a constellation of low-cost instruments may provide added value to the larger scientific and operational satellite missions (e.g. the Copernicus Sentinel missions); and a small, lightweight spectrometer can also be mounted easily on a high-altitude UAV (offering high spatial resolution). Last but not least, a low-cost instrument may allow to break through the ‘cost spiral’: lower cost will allow to take more risk and thus progress more quickly. This may lead to a much faster development cycle than customary for current Earth Observation instruments. To explore the potential of a constellation of low-cost instruments a consortium of Dutch partners was formed, which currently consists of Airbus Defence and Space Netherlands, ISISpace, S and T and TNO. In this paper we will illustrate this new design approach by using the most advanced design of a hyperspectral imaging spectrometer (named ‘Spectrolite’) as an example. We will discuss the different design and manufacturing techniques that were used to realize this compact and low-cost design. Laboratory tests as well as the first preliminary results of airborne measurements with the Spectrolite breadboard will be presented and discussed. The design of Spectrolite offers the flexibility to tune its performance (spectral range, spectral resolution) to a specific application. Thus, based on the same basic system design, Spectrolite offers a range of applications to different clients. To illustrate this, we will present a mission concept to monitor NO2 concentrations over urban areas at high spatial resolution, based on a constellation of small satellites.