In the process of China’s reform and opening-up, regional environment pollution situation is affected by fiscal decentralization degree and urbanization level. This paper builds a theoretical framework to explore the mechanisms of fiscal decentralization and the impact of urbanization on environmental pollution; by using China’s 30 provinces’ panel data of 2000-2013, by constructing spatial econometric model and panel threshold model, and empirically studies the relationship of fiscal decentralization, urbanization and environment pollution. The analysis results show that China’s present fiscal decentralization system is easy to stimulate the local governments to develop the industries with high pollution and high economic benefit, and that it is adverse to reduce environment pollution. The influence of urbanization on environment pollution exists in urban and rural equalization for the threshold effect of the scale, lower level of equalization of urban and rural development of urbanization can lead to increased pollution, after crossing the threshold, there is no this negative effect while fiscal decentralization is easy to cause the gap between urban and rural areas and the pollution effect of urbanization. China should reasonably design fiscal decentralization system, reform promotion examination system, consolidate the construction of urban and rural equalization and boost new-style urbanization development.