Digital technology becomes the new engine of manufacturing upgrading. The article brings digital technology and manufacturing in global value chain into the same analytical framework, measures development level of digital technology by using World Input-Output Database data, Theoretical analysis shows that impact of digital technology on manufacturing upgrading has innovation effect, resource allocation effect and penetration effect. Empirical test results show that (1) Digital technology level index of China’s manufacturing industry increased from 0.286 in 2001 to 0.359 in 2014, The effect of digital technology on upgrading of Chinese manufacturing industry is significant positive at 5% level with influence coefficient of 0.129; Distinguish digital technology sources found that domestic digital technology is used in a large proportion, foreign digital technology is more efficient, the influence coefficients are 0.124 and 0.703 respectively, and both promote upgrading of manufacturing industry; (2) The role of digital technology varies among industries. The promotion effect on capital intensive industries and technology intensive industries is positive at 5% level, and influence coefficients are 0.124 and 0.108 respectively. It has significant positive impact on low-to-medium and medium-to-high technology manufacturing at 1% level with influence coefficients of 0.177 and 0.138 respectively. Therefore, China needs to accelerate deep integration of digital technology and manufacturing industry, and climb to the middle and high end of global value chain.