Abstract: Previous literatures on the impact of FDI on firm innovation focus on its unilateral effect and neglect the bilateral effect of FDI． Based on the data of China's large and medium-sized industrial enterprises at the provincial level in 1998 ～2015，this paper calculates the crowding out effect，spillover effect and net effect of FDI on enterprise innovation by using the bilateral stochastic frontier model. The conclusion of this paper shows that the interaction between FDI's crowding out effect ( 27.65%) and spillover effect ( 16.97%) on enterprise innovation leads to the fact that the actual enterprise innovation level is lower than the frontier enterprise innovation level 10.69%． The net effect of FDI on enterprise innovation is negative，and it is not significantly improved in different years，regions and provinces，and the crowding out effect of FDI is still dominant． Study on the effect of bilateral threshold stochastic frontier model based on the effect of FDI on the innovation of enterprises with existing Ｒ＆D funds，Ｒ＆D personnel，the level of economic development，human capital，and the degree of opening of city city threshold，is weak. Therefore，under the premise of insufficient overall FDI spillover effect，improving the threshold value can enhance the absorptive capacity of FDI and promote enterprise innovation．