Abstract: The drives of corporate environmental investment have aroused widespread academic concerns,but the study from the angle of the ‘Two Hands’ of government and market is rare. Based on the samples of listed companies in heavy polluting industries from 2008 to 2013,this paper empirical tests the relationship of environmental regulation and environmental investment,more specifically,it examines the moderating effects of market competition on it. The study finds that:(1)There is a inverted U-shape relationship between environmental investment and environmental regulation,that is,with the increasing intensity of environmental regulation,environmental investments first increases and then decreases. It reveals a critical value of the effect of environmental regulation on environmental investment.(2)Currently,Most of companies face with the lower intensity of environmental regulation and they are in the rising stage of inverted u-shaped curve. It means that to further enhance the strength of environmental regulation can increase investment in environmental protection;(3)Market competition and environmental regulations are complementary on environmental investment. When the level of market competition is higher,the effect of environmental regulation on environmental investment is more significant. As an external mechanism,market competition helps strengthen the effect of environmental regulation.