Accelerating the development of a nationally unified market is essential, creating a technology environment conducive to innovation within this mega-scale market is crucial for implementing the innovation-driven development strategy. As carriers of innovation factors and hubs for knowledge exchange, the ability of regions to acquire heterogeneous knowledge profoundly influences innovation potential. Data on non-local subsidiaries in China from 2003 to 2021 and patent information were utilized to empirically examine the impact of non-local investment on regional innovation.A significant enhancement of regional innovation capability by non-local investment is found. This effect is more pronounced in regions with lower degrees of vertical fiscal imbalance, higher levels of intellectual property protection, and stronger regional accessibility. Mechanism analysis reveals that regional innovation capability is primarily enhanced through two approaches enabled by non-local investment: increased regional technological diversity and elevated levels of non-local collaborative innovation. Upon distinguishing technological diversity, it is discovered that related technology diversity is mainly enhanced by non-local investment, thereby driving incremental innovation. Enhancement of unrelated technology diversity, which potentially facilitates higher-risk, higher-reward disruptive innovation, is not the primary channel utilized.Therefore, precise identification of the differential innovation-promoting effects of non-local investment is critical. To fully unleash its innovation potential, accelerated development of a nationally unified market is required. Unified fundamental market institutions and rules need improvement. Incentive systems for technological innovation must be strengthened. These actions are essential to support higher-quality regional development.