Abstract: Based on the perspective of environmental externality of industrial agglomeration, this paper uses the panel data of China’s provinces from 1999 to 2012 and analyzes how industrial agglomeration, the linkage of industrial agglomeration and technological innovation impact on environmental pollution. Furthermore, we divide the sample into two groups, coastal provinces and inland provinces, then examine if there exists regional disparity. The results show that: (1) The relationship between agglomeration and pollution is inverted-U-shaped and technological innovation acting as an important factor determines the location of the turning point. (2) Almost all of the provinces locate on the left side of the inverted-U-shaped curve, which means China’s industrial agglomeration has not possessed a positive environmental externality. (3) Coastal provinces achieve a higher position on the curve than inland provinces, which means coastal provinces with higher level of industrial agglomeration as well as more pollution. However, the emission abatement induced by technological innovation of inland provinces is much more significant than coastal provinces, which means that the positive externality of industrial agglomeration of coastal provinces is decreasing and that its development of agglomeration has entered a bottleneck period.