Whether the intensity of environmental regulation promotes or inhibits industrial upgrading, there are differences in the study of existing literature. Based on the panel data of 108 cities in the Yangtze River Economic Belt from 2003 to 2015, the paper studies the direct and indirect effects of environmental regulation on the industrial upgrading of the Yangtze River Economic Zone by using the spatial Durbin model. The results show that the coefficient of direct effect and its spatial lag of environmental regulation intensity are significantly negative in each model, which indicates that the improvement of environmental regulation within the jurisdiction or adjacent area will restrain the industrial upgrading of Yangtze River economic zone; ignoring the spillover effect of environmental regulation will lead to an overestimation of its impact on industrial upgrading. The study also finds that economic growth and human capital have a significant effect on industrial upgrading, while foreign direct investment, resource endowment and government intervention will inhibit the industrial transformation and upgrading of the Yangtze River belt in varying degrees.