Sustainable　development　of　industry,　especially　in　developing　countries,　is　an　effective　way　to　solve　the　conflict　between　industrial　economic　growth　and　the　ecological　environment.　Industrial　environmental　efficiency　is　selected　to　measure　the　sustainable　development　of　industry.　We　used　the　super-SBM　method　to　evaluate　the　industrial　environmental　efficiency　of　29　provinces　during　the　period　of　2007-2015.　Our　study　analyzes　the　effect　of　FDI　and　market　fragmentation　on　industrial　environmental　efficiency　based　on　the　system　GMM　approach.　The　result　indicates　that　the　impact　of　FDI　on　industrial　environmental　efficiency　is　significantly　negative,　which　suggests　that　FDI　significantly　hinders　industrial　environmental　efficiency.　Market　fragmentation　significantly　inhibits　industrial　environmental　efficiency.　We　also　further　investigate　the　effect　of　the　interaction　between　FDI　and　market　fragmentation　on　industrial　environmental　efficiency.　The　result　indicates　that　the　negative　effect　of　FDI　on　industrial　environmental　efficiency　is　stronger　in　provinces　with　more　severe　market　fragmentation.　Based　on　the　findings,　the　government　should　promote　the　integration　of　regional　market,　optimize　the　structure　of　FDI　and　improve　environmental　quality.