The micro data of China’s industrial enterprises from 1998 to 2007 are used to measure allocation distortion index of capital and labor and the distortion index of individual enterprise and overall distortion index，the influence of enterprise factor allocation distortion on the total factor productivity（TFP）of enterprises is analyzed，and the main sources of factors' allocation distortion are tested. The results show that the capital allocation distortion indices show rising trends，that labor allocation distortion index keeps stable，but the overall enterprise distortion index is a little rising，that factor allocation distortion index of manufacturing industry is higher than that of other industries，that factor allocation distortion of state-owned enterprises and collective enterprises is more serious than other enterprises，that factor allocation distortion index in the east part of China is higher than that of middle and west part of China，that if the enterprises can effectively wipe out factor allocation distortion，the TFP of industrial enterprises will raise 25.56%，and the TFP in east，middle and west part of China will raise 27.34%，20.56% and 27.21% respectively，that the potential TFP growth space of state-owned enterprises and collective enterprises is obviously higher than non-public-owned enterprises，that the main sources of enterprise factor allocation distortion are the raising of the ratio of capital to labor and scale enlargement，and that export density，subsidy density，enterprise age and foreign capital can significantly mitigate the degree of enterprise factor allocation distortion.