The paper examines the impact of the digital economy on urban innovation levels in China, using a quasi-natural experiment based on the "Digital China" strategy implemented by local governments. The study employs a multi-temporal double-difference (DID) method to analyze panel data from 286 cities. Key findings indicate that the digital economy significantly enhances urban innovation levels, with robustness tests confirming the significance of this effect. Mechanism analysis reveals that the digital economy improves innovation through industrial structure upgrades, particularly in terms of quality. Additionally, the study finds that the "Digital China" strategy has a more pronounced impact on innovation output in the Middle Eastern region compared to the Western region. The research underscores the importance of accelerating the implementation of local digital economy development strategies to promote high-quality regional economic development.The paper examines the impact of the digital economy on urban innovation levels in China, using a quasi-natural experiment based on the "Digital China" strategy implemented by local governments. The study employs a multi-temporal double-difference (DID) method to analyze panel data from 286 cities. Key findings indicate that the digital economy significantly enhances urban innovation levels, with robustness tests confirming the significance of this effect. Mechanism analysis reveals that the digital economy improves innovation through industrial structure upgrades, particularly in terms of quality. Additionally, the study finds that the "Digital China" strategy has a more pronounced impact on innovation output in the Middle Eastern region compared to the Western region. The research underscores the importance of accelerating the implementation of local digital economy development strategies to promote high-quality regional economic development.