The coordinated advancement of urban digitalization and green transformation (dual-transformation coordination) represents a crucial strategy for adapting to evolving technological and environmental conditions and for cultivating new sources of competitive advantage. Drawing on panel data from 284 prefecture-level cities in China spanning 2011 to 2023, nonlinear models, curvilinear moderating effect models, and partial linear functional coefficient models were employed to empirically investigate the effects of digitalization on green sustainable innovation and the associated boundary conditions. The findings are summarized as follows. Digital transformation exerts both "driving" and "cursing" effects on green sustainable innovation. The interplay of these two underlying mechanisms generates an inverted U-shaped relationship. During the study period, the driving effect remained dominant in most Chinese cities, indicating a favorable trend in the coordinated development of digitalization and greening. "Local-neighboring" environmental regulation imposes heterogeneous nonlinear moderating effects on the relationship between local digital transformation and green sustainable innovation. Specifically, local environmental regulation intensifies both the digital "driving" and "cursing" effects, resulting in a steeper inverted U-shaped curve and a leftward shift of the inflection point. This shift causes the optimal marginal effect of digitalization on green sustainable innovation to be achieved earlier. Geographically proximate environmental regulation strengthens the inverted U-shaped relationship between local digitalization and strategic green sustainable innovation, whereas economically and geographically proximate environmental regulation strengthens the inverted U-shaped relationship between local digitalization and substantive green sustainable innovation. Estimation results derived from the partial linear functional coefficient model further reveal that "local-neighboring" environmental regulation nonlinearly moderates the dual effects of digitalization. It enriches the literature on digital transformation and green innovation, providing theoretical insights for Chinese cities as they move toward a new stage of "dual-transformation coordination" development.