<p>Given the important role of green innovation (GI) in sustainable development, how best to promote it in the digital economy (DE) has become a key focus for research. Based on the significant impact of institutions on regional development and business behavior, this study combines the institutional-based view (IBV) with the resource-based view (RBV), to construct an analytical framework that analyzes the impact mechanism of institutional factors on DE and GI. The multiple regression analysis is conducted using 2976 observations from 248 cities in China from 2011 to 2022 to explore the impact of DE on GI in different institutional environments. The empirical results indicate a significant positive correlation between DE and regional GI, which can be further enhances by the formal institutions. Business environment also strengthens this relationship, while dialect diversity weakens DE’s positive effect on GI. Consequently, this paper recommends that the government encourage the development of digital infrastructure and systems, optimize the business environment, and promote the use of a common language for communication, in order to promote regional GI. It is worth noting that these relationships have not received attention in previous studies. The research results confirm that enhancing DE development is necessary to achieve regional GI. At the same time, the government can further strengthen institutional construction, create a better legal environment, strengthen policy supervision, promote unified language, and create a better business environment.</p>