Abstract: Based on panel data of 30 provinces in China, measure the development level of digital economy in each region using entropy method. And then, the spatial panel econometric model is used to empirically analyze the impact mechanism of the regional digital economy on the innovation activity. The study found that the digital economy can significantly promote the entrepreneurship activity of the region, and has the spatial spillover effect, which can improve the entrepreneurship level of neighboring regions. Institutional transaction costs play a significant regulatory role in the process of digital economy affecting regional entrepreneurship activity. Digital economy can promote regional entrepreneurship development by reducing institutional transaction costs, inhibiting resource mismatch. Finally, according to the research conclusions, policy recommendations are put forward from the following aspects: seizing the development opportunities of digital economy, reducing institutional transaction costs, improving regional innovation level, and stimulating market vitality and social creativity.