Based on China’s provincial-level panel data from 2007 to 2023, this study examines the optimizing effect of environmental regulation on employment structure using a GMM model, and clarifies its mechanism of action using a mediated effect model. The conclusion shows that the impact of environmental regulation on employment structure presents multidimensional characteristics. On the one hand, environmental regulation directly promotes the adjustment of employment structure; on the other hand, it guides the labor force to gather in environmentally friendly service industry by forcing the green transformation of industrial structure; at the same time, it promotes the transfer of labor force to high technology field by stimulating technological innovation of enterprises, and promotes the evolution of employment structure to knowledge-intensive direction by improving human capital level. Heterogeneity analysis shows that the marginal effect of environmental regulations on the industrial structure of employment is limited in China’s eastern coastal economic zone and regions with high urbanization rates. Moreover, the contribution of enhanced environmental regulatory intensity to the efficiency of cross-sectoral allocation of labor factors is constrained by the regional urbanization rate.