The effective functioning of any sector of the economy is the result of the balanced mechanism of government regulation. However today, the space industry of Ukraine is in a recession phase. This situation is a consequence of the inefficient government policy concerning the distribution of budget expenditures, the lack of adaptive management mechanisms to the market economy, and the government's distrust to this sector through the corruption component. The purpose of the article is to analyze the formation and disclosure of the practical basis of the mechanism of government regulation of the space industry of Ukraine. The objectives of sustainable development were highlighted for the achievement of which space technologies are used. The basics of the legislative regulation of the development of the space industry in the developed countries of the world and in Ukraine were investigated. The analysis of the funding volumes of the National Targeted Scientific and Technical Space Program of Ukraine during 2013-2017 has been carried out. It was revealed that the government's unawareness of the importance of developing high-tech enterprises leads to ineffective government regulation of the space industry. The mechanism of cooperation between the state and private enterprises does not have a development strategy that affects the competitiveness of Ukrainian space technologies at the world level. The basic principles and indicators of the effective functioning of the space industry were defined. The conceptual foundations of the mechanism of government regulation of Ukraine's space activities were substantiated. It was determined that government regulation should be directed at creating a closed production cycle based on specialized enterprises without interfering in the process of the political component, this will ensure effective activity in market conditions. Such result can be achieved by creating a state corporation (concern), which should combine enterprises and institutions of the defense and space industry.