Taking the data of A-share listed companies in Shanghai and Shenzhen Stock Exchanges in China from 2010 to 2014 as a sample, using data envelopment analysis to calculate the capacity utilization of enterprises for the measurement of the extent of overcapacity,this paper makes an empirical analysis on the impact of environmental regulation on technological innovation and overcapacity. The results show that there is a U-type relationship between environmental regulation and technological innovation, in addition, there is also a U-shape relation between environmental regulation and capacity utilization. In other words, lower environmental regulation will constrain the technological innovation capability of enterprises and aggravate overcapacity while higher environmental regulation will promote the technological innovation capability of enterprises and alleviate overcapacity. Besides, technological innovation has a significant mediating effect on the U-type relationship between environmental regulation and capacity utilization.