Abstract: Nowadays, traditional government trade-offs have been transferred. The importance of environmental protection is not necessarily inferior to the pursuit of economic growth. Focusing on the relationship between environmental regulation and industrial structure upgrading would help supervisory authorities grasp the economic-side feedback effect of environmental policies. Therefore, this paper used China's provincial panel data from 2004 to 2015, analyzed the impact of environmental regulation on industrial structure upgrading with the consideration of regional economic heterogeneity and government behavior, and further discussed the specific mechanism of action. This paper finds that the impact of environmental regulation on the upgrading of industrial structure has regional characteristics, the eastern region has formed a positive promotion effect, the central region has a reverse inhibition effect, and the western region has no impact. The higher pressure of government officials' assessment is, the smaller pressure on fiscal revenue and expenditure and the better relative financial resources can drive the upgrading of industrial structure. In terms of the transmission mechanism, it demonstrates R&D innovation and opening up have a positive conduction effect on “environmental regulation-industrial structure upgrading”, while FDI inflow and investment demand have reverse conduction effects. Therefore, it is necessary to strengthen the coordination effect of government actions, effectively grasp the functional mechanism of environmental regulation, advocate innovation, deepen reform and opening up, and construct a reasonable environmental regulation policy to optimize and upgrade the industrial structure.