China is one of the major countries attracting FDI. However, there is a structural discrepancy between low-cost-oriented FDI and the upgrade of manufacturing industry agglomeration. Against this backdrop, attention is focused on reshaping regional competitiveness so that manufacturing industry agglomeration can enhance an effective use of external resources, overcome the predicament of the structural discrepancy, and accelerate the transformation and upgrading of the industrial structure. However, current research looks at the problem between the endogenous growth power and the innovative space of FDI and agglomeration in isolation, and it cannot clearly recognize the effect of the transformation of FDI based on agglomeration, which limits the understanding of the two-way effect and evolution of organized production during FDI and agglomeration. Therefore, this paper takes the technological transformation of FDI as a new perspective to analyse the mechanism of this transformation and the path of the innovative spatial response based on manufacturing industry agglomeration by setting up a stochastic frontier production function model, a cross-item model and the spatial Doberman model and by using data covering 264 cities in China over the period 1999-2015. The results show the following: (1) The technological transformation of FDI is an important driving force for the innovation of manufacturing industry agglomeration. (2) The analysis based on Marshallian externalities finds that the dual role based on the scale effect of manufacturing industry agglomeration and the diffusion effect of FDI is a functionary mechanism for the technological transformation of FDI. (3) The analysis from the region, industry and location perspectives reveals that the embeddedness of FDI helps to push the formation of the link of the trans-regional production network, promotes the transmission of spillovers from technological progress through the network platform, and then pushes the formation of an innovation network for production. The formation of the regional innovation network withnesses a rapid increase in TFP for adjacent spaces, alleviates the polarization in regional development, and promotes balanced regional development. This paper implies that China should continue to implement the basic national policy of opening wider to the outside world, absorb foreign investment through cooperative industrial development policy, and promote clustering from single polarization to chain cooperation. This study makes an effort to provide scientific evidence and policy implications for boosting China's opening up and building its innovative system and for promoting the agglomeration of the manufacturing industry and the high-quality development of the regional economy.