Exploring the causes of environmental inefficiency caused by regulatory capture is a necessary prerequisite for promoting the green development of China’s economy. Practice activities to improve environmental efficiency in diversified contexts are inseparable from the institutional environment on which they rely. The article analyzes the mechanism of regulatory capture affecting regional environmental efficiency in the context of institutional environment from a theoretical level, using China’s inter-provincial panel data, and based on the environmental efficiency comprehensively calculated by the SBM model, and conducts an empirical investigation on the impact of regulatory capture on environmental efficiency and the heterogeneous effect of institutional environment (including the quality of government and the legal environment) regulating the relationship between the two. Results show that: regulatory capture significantly inhibited the improvement of regional environmental efficiency. The institutional environment positively regulates the impact of regulatory capture on environmental efficiency, that is, the institutional environment corrects the negative relationship between regulatory capture and environmental efficiency. The regulatory effect of the level of legal system is more prominent in areas with low government quality and good legal environment, and local governments can play a more corrective role in areas with high government quality and poor legal environment. Only when the institutional environment exceeds a certain critical value will the restraining effect of regulatory capture on environmental efficiency be weakened. Therefore, attention should be paid to the distorting effect of regulatory capture on the regulatory restraint process, and the regulatory role of government quality and legal environment in shaping regulatory order and improving environmental efficiency should be fully utilized, so as to optimize the institutional environment and promote the win-win development of regional green economy.