This paper investigates the effects of land financing on regional innovation by means of 2SLS regression analysis on the panel data from 31 provincial governments in China (2003-2011). The finding shows that there is a significant inverted U-curve relationship between land financing and regional innovation. It implies that the positive externality of land financing is decreasing while the negative externalities are emerging, so that land financing promotes regional innovation at the beginning but jeopardizes it in the end. These compound effects reflect the rational choices of local governments under strict resource constraints and strong and target pressures, and enterprises are also rational in pursuit of short-term profits and avoiding innovation risks. It highlights new perspectives for exploring the institutional antecedents of regional innovation and further understanding the cause-effect of policy implementation paradox in China, and it also provides implications for practitioners to promote comprehensive reforms, advance the new-type urbanization and implement innovation-led development strategy.