Using the Two Control Zones policy in China, we analyze the impact of tougher environmental policy on the employment of industrial enterprises through DID and PSM‐DID methods. We find that tougher environmental policy has a positive (negative) employment effect for industrial enterprises above (below) designated size. In the heterogeneity tests, the positive effect is more significant for enterprises with bigger size, stronger R&D capability, less financial constraint, owned by foreign shareholders, and located in eastern provinces. As for the enterprises in heavily polluting industries, tougher environmental regulation may hinder their development.