This study investigates whether and how foreign direct investment (FDI) influences local industrial emissions. Leveraging spatial and temporal variations in FDI inflows into China’s manufacturing sector during the 2000s, we find that an FDI entry within commuting distances reduces domestic firms’ sulfur dioxide emission intensity by 6.01% and that of other industrial pollutants by 3.3%–5.4%. These emission reductions are driven by supply-chain interactions between FDI and domestic entities, independent of local regulations. Our findings offer insight to a market-driven greenification process via the supply chain and highlight positive environmental spillovers of FDI to developing countries.