This study integrates factor price distortion, industrial structure upgrading and industrial environmental efficiency into an analytical framework and identifies the relationship between factor price distortion and industrial environmental efficiency using the fixed effect model. Meanwhile, we also examine the influence mechanism of industrial structure upgrading on the factor price distortion affecting industrial environmental efficiency. The results indicate that factor price distortion significantly inhibits industrial environmental efficiency. Moreover, we analyze the interaction between factor price distortion and industrial structure upgrading and find that the inhibitory effect of factor price distortion on industrial environmental efficiency is weakened in areas with better upgrading of industrial structure. Further investigation of the heterogeneity effect shows that the negative effect of factor price distortion on industrial environmental efficiency is more significant in the central and western regions. The government should improve the distortion of factor price and optimize the industrial structure so as to promote the green development of industrial industry.