Abstract: The agglomeration of artificial intelligence industry, as an important spatial organizational form and strategic layout form for the development of emerging industries worldwide, is an important support for promoting industrial upgrading and transformation, and stimulating urban innovation vitality. Based on panel data from 268 prefecture level cities and above in China from 2015 to 2024, systematically analyze the impact and mechanism of artificial intelligence industry agglomeration on urban innovation capability. Research has found that the agglomeration of artificial intelligence industries can significantly promote the improvement of urban innovation capabilities. The heterogeneity test results show that the clustering of the artificial intelligence industry has a stronger promoting effect on innovation capability in central cities and eastern cities. Mechanism analysis shows that the agglomeration of artificial intelligence industry can empower urban innovation capabilities through two paths: enhancing knowledge related diversity and knowledge unrelated diversity. Further analysis reveals that the impact of artificial intelligence industry agglomeration on urban innovation capability has a threshold effect and is gradually increasing. Based on this, targeted suggestions are proposed to optimize the spatial layout of the artificial intelligence industry, build diversified knowledge exchange platforms, and implement differentiated regional industrial development strategies, in order to fully leverage the role of artificial intelligence industry agglomeration in enhancing urban innovation capabilities and promoting high-quality urban economic development.