Family firms are the predominant form of business organization in China. Entrepreneurship orientation (EO) plays an important role in promoting the transformation and upgrading of family firms and their sustainable growth in China. This paper aims to explore the effect of family members' psychological ownership on entrepreneurial orientation of family firms, and to examine the moderating effects of family involvement (i.e., family management, family generation) and institutional environment in this relationship using the data of family firms in Eastern and Western China. The result reveals that family members' psychological ownership positively impacts entrepreneurial orientation of family firms. The result also shows that family management positively moderates the relationship between family members' psychological ownership and entrepreneurial orientation of family firms. That is, as family management increases, the positive effect of family members' psychological ownership on EO of family firms increase. In addition, family generation in management and institutional environment negatively moderate the relationship between family members' psychological ownership and entrepreneurial orientation of family firms. That is, as family generation in management increases, or institutional environment improves, the positive effects of family members' psychological ownership on EO of family firms decrease. This paper not only enriches the existing researches on antecedents of family firm entrepreneurial orientation in emerging economies, but also provides enlightenment for family firms' entrepreneurship in China.