Based on the panel data of 31 provinces in China from 2013 to 2020, this article explores the impact of the digital economy on the upgrading of industrial structure from the perspective of technological innovation. By constructing a comprehensive index system covering digital infrastructure, industrial digitalization, digital industrialization and the supporting environment for digital development, and then assigning values using the entropy method, empirical tests are conducted using the fixed effects model, instrumental variable method and mediating effects model. The research findings are as follows: (1) The digital economy significantly promotes the rationalization and upgrading of the industrial structure, and the conclusion has passed robustness tests such as lag effect, indicator replacement, and sample exclusion; (2) Regional heterogeneity indicates that the eastern region has the strongest promoting effect on the digital economy, while the western region is limited by weak digital infrastructure and there is a phenomenon of resource misallocation. (3) Technological innovation is an important intermediary path for the digital economy to drive the upgrading of the industrial structure. The marginal contribution of this article lies in improving the measurement system of the digital economy, revealing the transmission mechanism of technological innovation, and providing a basis for the design of regional differentiated policies.