SENIOR CONVERTIBLE PROMISSORY NOTE

Exhibit 4.2

EXECUTION COPY

THIS NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). NEITHER THE NOTE NOR THE SECURITIES ISSUABLE HEREUNDER MAY BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT WITH RESPECT TO SUCH NOTE OR SECURITIES OR AN OPINION OF COUNSEL SATISFACTORY TO LUNA INNOVATIONS INCORPORATED THAT SUCH REGISTRATION IS NOT REQUIRED.

L UNA I NNOVATIONS I NCORPORATED

SENIOR CONVERTIBLE PROMISSORY NOTE

FOR VALUE RECEIVED, Luna Innovations Incorporated, a Delaware corporation (the “ Company ”) promises to pay to Carilion Health System, a Virginia non-profit, non-stock corporation (“ Investor ”), or its registered assigns, in lawful money of the United States of America the principal sum of One Million Dollars ($1,000,000.00), or such lesser amount as shall equal the outstanding principal amount hereof, together with simple interest from the date of this Note on the unpaid principal balance at a rate equal to 6.00% per annum, computed on the basis of the actual number of days elapsed and a year of 365 days. All unpaid principal, together with any then unpaid and accrued interest and other amounts payable hereunder, shall be due and payable on the earlier of (i) December 30, 2009, or such later date as may be determined pursuant to Section 9 hereof (the “ Maturity Date ”), or (ii) when, upon or after the occurrence of an Event of Default (as defined below), such amounts are declared due and payable by Investor or made automatically due and payable in accordance with the terms hereof. This Note is one of the “Notes” issued pursuant to that certain Class C Common Stock and Note Purchase Agreement of even date herewith (as may from time to time be amended, modified or supplemented, the “ Stock and Note Purchase Agreement ”) between the Company and the Investor.

The following is a statement of the rights of Investor and the conditions to which this Note is subject, and to which Investor, by the acceptance of this Note, agrees:

1. Definitions . As used in this Note, the following capitalized terms have the following meanings:

(a) “ Change of Control ” shall mean (a) the merger or consolidation of the Company with or into another entity in which the stockholders of the Company immediately prior to such merger

or consolidation own less than 50% of the voting securities of the surviving entity, (b) any other transaction or series of related transactions to which the Company is a party as a result of which the stockholders of the Company immediately prior to such transaction or series of related transactions own less than 50% of the voting securities of the Company or other surviving entity following such transaction or related transactions (other than the sale of equity securities by the Company in a capital raising transaction), or (c) a sale, lease or other conveyance of all or substantially all of the assets of the Company.

(b) “ Class B Common Stock ” shall mean the Class B Common Stock, $0.001 par value per share, of the Company.

(c) “ Class C Common Stock ” shall mean the Class C Common Stock, $0.001 par value per share, of the Company.

(d) “ Common Stock ” shall mean the Common Stock, $0.001 par value per share, of the Company.

(e) the “ Company ” includes the corporation initially executing this Note and any Person which shall succeed to or assume the obligations of the Company under this Note.

(f) “ Event of Default ” has the meaning given in Section 4 hereof.

(g) “ GAAP ” shall mean generally accepted accounting principles as in effect in the United States of America from time to time.

(h) “ Investor ” shall mean the Person specified in the introductory paragraph of this Note or any Person who shall at the time be the registered holder of this Note.

(i) “ IPO ” shall mean the closing of the Company’s first firm commitment underwritten public offering of the Company’s Common Stock registered under the Securities Act.

(j) “ Majority in Interest ” shall mean more than fifty percent (50%) of the aggregate outstanding principal amount of the Notes issued pursuant to the Stock and Note Purchase Agreement.

(k) “ Material Adverse Effect ” shall mean a material adverse effect on (a) the business, assets, operations or financial condition of the Company; (b) the ability of the Company to pay or perform the Obligations in accordance with the terms of this Note and the other Transaction Documents and to avoid an Event of Default, or an event which, with the giving of notice or the passage of time or both, would constitute an Event of Default, under any Transaction Document; or (c) the rights and remedies of Investor under this Note or the other Transaction Documents.

(l) “ Note ” or “ Notes ” shall mean the senior convertible promissory notes of the Company issued pursuant to the Stock and Note Purchase Agreement.

(m) “ Obligations ” shall mean and include all loans, advances, debts, liabilities and obligations, howsoever arising, owed by the Company to Investor of every kind and description (whether or not evidenced by any note or instrument and whether or not for the payment of money) now existing or hereafter arising under or pursuant to the terms of this Note and the Stock and Note

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Purchase Agreement, including all interest, fees, charges, expenses, attorneys’ fees and costs and accountants’ fees and costs chargeable to and payable by the Company hereunder and thereunder, in each case, whether direct or indirect, absolute or contingent, due or to become due, and whether or not arising after the commencement of a proceeding under Title 11 of the United States Code (11 U. S. C. Section 101 et seq .), as amended from time to time (including post-petition interest) and whether or not allowed or allowable as a claim in any such proceeding.

(n) “ Person ” shall mean and include an individual, a partnership, a corporation (including a non-profit corporation, a non-stock corporation, or a business trust), a joint stock company, a limited liability company, an unincorporated association, a joint venture or other entity or a governmental authority.

(o) “ Qualified Change of Control ” shall mean a Change of Control that (A) involves a bona fide, arm’s length transaction with a third party unaffiliated with the Company, the terms of which have been negotiated in good faith by the Company and such third party, and (B) in respect of a stock purchase or merger, results in such third party acquiring one hundred percent (100%) of the voting securities (excluding options, warrants or other rights to purchase capital stock of the Company then outstanding) of the Company.

(p) “ Securities Act ” shall mean the Securities Act of 1933, as amended.

(q) “ Stock and Note Purchase Agreement ” has the meaning given in the introductory paragraph hereof.

(r) “ Subsidiary ” shall mean (a) any corporation of which more than 50% of the issued and outstanding equity securities having ordinary voting power to elect a majority of the board of directors of such corporation is at the time directly or indirectly owned or controlled by the Company, (b) any partnership, joint venture, or other association of which more than 50% of the equity interest having the power to vote, direct or control the management of such partnership, joint venture or other association is at the time directly or indirectly owned and controlled by the Company, (c) any other entity included in the financial statements of the Company on a consolidated basis.

(s) “ Transaction Documents ” shall mean (i) this Note, (ii) each of the other Notes issued under the Stock and Note Purchase Agreement and (iii) the Stock and Note Purchase Agreement.

2. Interest . Accrued interest on this Note shall be payable on the Maturity Date or upon conversion as provided herein.

3. Prepayment . This Note may not be prepaid without the consent of the Investor.

4. Events of Default . The occurrence of any of the following shall constitute an “ Event of Default ” under this Note and the other Transaction Documents:

(a) Failure to Pay . The Company shall fail to pay (i) when due any principal or interest payment on the due date hereunder or (ii) any other payment required under the terms of this Note on the date due and such payment shall not have been made within five days of the Company’s receipt of Investor’s written notice to the Company of such failure to pay; or

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(b) Voluntary Bankruptcy or Insolvency Proceedings . The Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated, (v) become insolvent (as such term may be defined or interpreted under any applicable statute), (vi) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (vii) take any action for the purpose of effecting any of the foregoing;

(c) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within 30 days of commencement; or

(d) Other Breach. The Company shall (i) breach any representation or warranty made in this Note or in the other Transaction Documents where such breach has a Material Adverse Effect, (ii) materially breach any covenant, obligation, condition or agreement contained in this Note or the other Notes (other than the provisions of Section 7 hereof and thereof) or in the Stock and Note Purchase Agreement, or (iii) fail to observe or perform any covenant, obligation or agreement contained in Section 7 of this Note or the other Notes; provided that, in the event of a breach that is reasonably capable of a cure, Investor shall first give written notice to the Company of such breach and an Event of Default shall not be deemed to occur (including without limitation for purposes of Section 5 below) until and unless such breach has not been cured within thirty (30) days of the Company’s receipt of Investor’s written notice of such breach.

5. Rights of Investor upon Default . Upon the occurrence or existence of any Event of Default (other than an Event of Default described in Sections 4(b) or 4(c) ) and at any time thereafter during the continuance of such Event of Default, Investor may, with the consent of a Majority in Interest of the holders of the Notes, by written notice to the Company, declare all outstanding Obligations payable by the Company hereunder to be immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. Upon the occurrence or existence of any Event of Default described in Sections 4(b) and 4(c) , immediately and without notice, all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. During any period in which an Event of Default has occurred and is continuing, the Company shall pay interest on the unpaid principal balance hereof at a rate per annum equal to the rate otherwise applicable hereunder plus five percent (5%). In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, Investor may exercise any other right power or remedy granted to it by the Transaction Documents or otherwise permitted to it by law, either by suit in equity or by action at law, or both.

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6. Conversion.

(a) Optional Conversion at Maturity. This Note shall only be convertible on the Maturity Date unless otherwise provided in Sections 6(b) or (c)  below. If no Qualified Equity Financing (defined below) or Qualified Change of Control takes place prior to the