Lace knitting is a style of knitting characterized by stable "holes" in the fabric arranged with consideration of aesthetic value. Lace is sometimes considered the pinnacle of knitting, because of its complexity and because woven fabrics cannot easily be made to have holes. Famous examples include the Orenburg shawl and the wedding ring shawl of Shetland knitting, a shawl so fine that it could be drawn through a wedding ring. Shetland knitted lace became extremely popular in Victorian England when Queen Victoria became a Shetland lace enthusiast. Her enthusiasm resulted i.a. in her choosing knitted lacework for presents; e.g. when in ca. 1897 the Queen gave a lace shawl as a present to American abolitionist Harriet Tubman. From there, knitting patterns for the shawls were printed in English women's magazines where they were copied in Iceland with single ply wool.

Some consider that "true" knitted lace has pattern stitches on both the right and wrong sides, and that knitting with pattern stitches on only one side of the fabric, so that holes are separated by at least two threads, is technically not lace, but "lacy knitting", although this has no historical basis.

Eyelet patterns are those in which the holes make up only a small fraction of the fabric and are isolated into clusters (e.g., little rosettes of one hole surrounded by others in a hexagon). At the other extreme, some knitted lace is almost all holes, e.g., faggoting.

Knitted lace with no bound-off edges is extremely elastic, deforming easily to fit whatever it is draped on. As a consequence, knitted lace garments must be blocked or "dressed" before use, and tend to stretch over time.

Lace can be used for any kind of garment, but is commonly associated with scarves and shawls, or with household items such as curtains, table runners or trim for curtains and towels. Lace items from different regional knitting traditions are often distinguished by their patterns, shape and method, such as Faroese lace shawls which are knit bottom up with center back gusset shaping unlike a more common neck down, triangular shawl.