Using a sample of 255 university teachers, this paper tests the assumption framework by the use of SEM and experiment, and the present paper aims to establish the influence of the key process of knowledge management on university’s innovation capacity and improve universities implementing more effectively knowledge management, and to promote the level of university’s innovation capacity. The result shows that knowledge creation, knowledge organization, knowledge dissemination and knowledge application have drastic affect on innovation capacity in the process of university knowledge management, while knowledge identification, knowledge collection and knowledge storage have little affect on it. And some suggestions to universities by research results are proposed.