Based on the panel data from 31 provinces and regions in China from 2012 to 2020, this study empirically analyzes the impact of digital technology application on government governance quality from the perspective of institutional environment. The findings reveal that the application of digital technology exerts a positive influence on government performance, integrity, regulatory quality, and the rule of law. Furthermore, the institutional environment exhibits a positive moderating effect on the relationship between digital technology application and these governance dimensions (performance, integrity, regulatory quality, and the rule of law). Digital technology application exerts a differential impact on government performance, integrity, regulatory quality, and the rule of law between China’ s eastern and western regions, and the moderating effect of the institutional environment also varies significantly across these two regions. This research provides valuable insights into how digital technology application affects governance quality and the moderating role of institutional environment. It suggests that governments should strategically leverage digital technologies while fostering a sound institutional environment to enhance the government governance quality.