Havinggreatly contributed to China’s coastal areas’ economic growth, the labor-intensive industry clusters are undergoing severe challenges. Under the background of promotingsupply side structural reform, it is vital to study its upgrading issues. Taking ZhejiangPuyuanSweater Industry Clusteras an example, this paper studies this upgradingin the perspective of domestic value chain. The research indicates that labor-intensive industry clusters can fulfill its function upgrading on the basis of domestic markets, while the specialized markets’ upgrading can boost this function upgrade.Also, the value chain supporting system is the key factor influencing the function upgrading.