<p>The circular economy is a critical path towards long-term sustainability. Drawing on data for Chinese A-share listed firms over 2007–2023, this article uses a multi-period difference-in-differences (DID) approach to study the relationship between the national circular economy demonstration city (CE) policy and corporate green transition (CGT). The research results show that the CE policy is significantly related to the improvement of CGT, and the results are still robust across a series of additional tests. Further evidence suggests that easing financing constraints and promoting green technology innovation may be important channels through which the policy affects CGT. In addition, higher debt financing costs will weaken the policy effect. Heterogeneity analysis shows that the impact of the policy varies from enterprise to enterprise and industry. This article provides empirical evidence for understanding the relationship between circular economy policies and green transition from the micro level of firms, and provides useful references for understanding how circular economy governance affects CGT.</p>