Abstract: Based on the analysis of the status of China's manufacturing upgrading and manufacturing's innovation efficiency, this paper examines the inherent mechanism of the innovation-driven effect of China's manufacturing upgrading from the perspective of the three forms of innovation:technological innovation, product innovation and institutional innovation. This paper estimates the impact of innovation on China's manufacturing upgrading by using panel data of China's 30 provinces from 2001 to 2015. Based on the empirical research at the national level and regional level, it is concluded that technological innovation and product innovation at the enterprise level have significant positive driving effects on China's manufacturing upgrading, institutional innovation at the government level not only has direct effect on driving China's manufacturing upgrading, but also drives manufacturing upgrading through the indirect effects of promoting enterprises' technological innovation or product innovation; Economic growth and higher education level can drive the upgrading of manufacturing, and investment growth has no significant effect on manufacturing upgrading.