["Business Strategy and the Environment, EarlyView. ", "\nABSTRACT\nThis research examines how environmental regulations influence green innovation among manufacturing firms in China, with special focus on the mediating effect of market openness and the moderating influence of market competition. Research constructs a dual‐mechanism concept according to which environmental regulations directly and indirectly affect green innovation by increasing market openness, and the strength of the indirect channel depends on the intensity of market competition. Using panel data from 11,572 A‐share manufacturing firms in China over the period 2012–2022, the analysis applies multiple econometric models to ensure robustness. The findings indicate that environmental regulations substantially foster green innovation, with market openness functioning as a key transmission channel, and that increased market competition enhances both the direct and indirect effects. Additional analyses reveal that these effects are more pronounced among large firms, state‐owned enterprises, firms located in eastern China, and in the post‐pandemic period. The study makes an important addition to the literature by showing the interaction of regulatory pressure, openness, and competition to affect the level of green innovation in firms. It also provides policy suggestions on the formulation of environmental policies that can promote green and sustainable industrial transformation via innovation.\n"]