The development problems of domestic mechanical engineering at the stage of its modernization are considered in the article. It is noted that the Russian economy transition to the innovative way of development is impossible without a deep modernization of engineering as a core industry. Authors reveal the reasons for machinery-producing industry degradation, suggest reasonable measures to bring the industry out of the deep protracted crisis such as a more active industrial policy, increase in investment, including research and development, increasing the level of specialization in production, skills training etc.