Abstract: The effect of Foreign Direct Investment(FDI) in China on the domestic-funded enterprise’ innovation is analyzed with the revised A-J model. No evidence shows that the technology spillover from FDI definitely leads to the innovative ability improvement of the domestic-funded enterprise before it reaches the threshold. Once over the threshold， with the spillover increasing， the innovative ability of the domestic-funded enterprise improves. With the industry data of China from 1999 to 2006， it is found that the innovation promotion effect from FDI on the domestic-funded enterprises in high-tech and middle-tech industries is not significant. But in the low-tech industry the effect is obvious. Finally， some explanations on the threshold and suggestions on the policy are given.