As a hidden driving force for a low-carbon, green, and high-quality economy, intellectual property (IP) protection has become an important institutional innovation for the environment and the development of the economy. However, most scholars have focused only on the contribution of IP protection to economic progress and ignored its impact on environmental quality. Based on panel data from 243 cities in China, a time-varying DID was used to assess the impact of the IP Demonstration Cities (IPDC) policy on urban environmental quality. Then, the study further analyzes the intrinsic mechanisms and heterogeneity of the impact of IP protection on environmental quality. The study finds that: first, the IPDC policy has an important environmental improvement effect; second, the IPDC policy mainly improves the environmental pollution problem through two mechanisms, namely, improving the green innovation capacity of enterprises and upgrading the industrial structure; and third, the environmental improvement effect of the IPDC policy is regionally heterogeneous and city-level heterogeneous and is more obvious in central and western cities with weaker economic development and non-mega cities.