The current serious resource constraints and ecological problems have brought new challenges to China's economic growth. Improving green total factor energy efficiency (GTFEE) and reducing energy consumption are necessary ways to achieve economic transformation and sustainable development . Based on the panel data of 30 Chinese provinces for the 2006–2017 period, this study uses the spatial Durbin model discuss the influence of OFDI and institutional quality on GTFEE. The research conclusions show that inter-provincial GTFEE has a significant spatial correlation. OFDI can not only improve the local GTFEE, but also the GTFEE in neighboring areas. Specifically, under the economic weight matrix, for every 1% increase in OFDI , the local GTFEE increased by 0.031%, and the GTFEE of the neighboring areas increased by 0.117%. OFDI can improve the GTFEE of the home country by improving technological innovation, upgrading the industrial structure and alleviating capital misallocation. Additionally, the results of the threshold effect show that the nonlinear impact of OFDI on GTFEE is dependent on institutional quality. Higher levels of corruption result in a reduction in OFDI's role in promoting GTFEE. However, the improvement in the marketization level and intellectual property protection can increase the positive influences of OFDI on GTFEE.