Abstract On the premise of expounding the theory of the impact mechanism of smart cities on the business environment and based on the panel data of 284 prefecture-level cities from 2010 to 2018, this paper takes the pilot policy of smart city launched in 2013 as a quasi-natural experiment, and uses the double difference modal to estimate the impact of smart city construction on regional business environment. The result shows that the smart city construction has significantly improved the regional business environment. Specifically, the smart city construction is mainly to further improve the business environment by improving the level of regional knowledge spillover, promoting urban intensive development and adjusting the industrial structure. In terms of urban heterogeneity, the improvement effect of smart city construction on the business environment in the central and western regions of China is not significant, and this improvement effect occurs only in the eastern and northeastern regions. In small and medium-sized cities that are not municipalities directly under the central government or provincial capitals, the higher the level of knowledge spillover, the stronger the effect of smart city construction on improving the business environment, but in municipalities directly under the central government and provincial capitals, the moderating effect of knowledge spillover is no longer significant. Therefore, in the next process of promoting the construction of smart cities, it is necessary for us to strengthen the level of urban knowledge stock, promote intensive urban development, optimize the industrial structure and increase attention to urban differences.