Abstract:China is currently in the transition stage from investment-driven economic growth to innovation-driven economic growth, leading regional development with technological innovation is an important focus for promoting economic development under the new normal, and the digital economy provides a new impetus and a new direction for promoting regional innovation and development. In order to explore the impact of digital economy on regional innovation capacity, based on the panel data of 276 Chinese cities from 2011 to 2021, we construct multi-dimensional indicators to measure the level of development of digital economy in the cities, and utiliz the fixed effect model and the mediation effect model to empirically test the mediation role of knowledge flow in the process of improving regional innovation capacity by digital economy, and to explore the regulation of the relationship between regional innovation environment and regional innovation capacity, and to explore the relationship between the two. The mediating effect of regional innovation environment on the relationship between the two is explored, and robustness, endogeneity and heterogeneity are tested. The results show that: the development of digital economy can effectively improve the number of regional patent applications, and the promotion effect on invention patents is significantly greater than that on utility patents and appearance patents, so as to improve the regional innovation capacity. The digital economy promotes regional innovation capability by facilitating knowledge flow, and the mediating effect of promoting knowledge flow varies significantly among different patent outputs. Regional innovation environment can positively regulate the promotion effect of digital economy on regional innovation capacity; the promotion effect of digital economy on the innovation capacity of eastern regions and central cities is significantly stronger, while the mediating effect of knowledge flow is larger in developing cities and central and western regions. Accordingly, in order to further unleash the innovation effect of the digital economy on regional innovation capacity, digital technological innovation needs to be accelerated, and regions should implement locally adapted digital technology development strategies.