In response to the deteriorating environmental pollution, China has formulated a series of environmental regulation policies. However, political centralization and economic decentralization have subjected the local governments (LGs) to the dual constraints of environmental protection and economic development during the implementation of environmental regulation, which has resulted in the failure of conventional environmental regulation. To this end, the central government (CG) has established a central environmental protection inspection system (CEPIS). However, the existing literature has insufficiently studied the role and policy tools of the CG for inspecting the LGs and the polluting enterprises (PEs) to implement environmental regulation, and lacked systematic analysis of the strategic interactions and policy effects caused by CEPIS. Evolutionary game theory (EGT) provides a powerful tool with which to unpack the interactive strategies of Muti-Agent in China. By exploring the evolution of different participants’ behavior and their evolutionary stable strategy (ESS), EGT enables a robust, quantitative analysis of this three-party game. Simultaneously, some numerical examples serve to verify the theoretical results and support four key insights. First, the selection of environmental strategies manifests in a dynamic process of constant adjustment and optimization. Second, the whole evolutionary game system can converge on an ideal state under certain conditions. Third, increasing the investments in the special transfer payments of environmental protection, expanding the scale of emissions trading market, and improving the emission reduction benefits can motivate the PEs to reduce their emissions and the LGs to perform their duties. Fourth, in some scenarios, simply increasing the political penalties for the LGs fails to motivate the LGs to perform their duties. This research can provide the evolutionary mechanism and broaden our understanding of relationship between environmental regulation and emission reduction strategies. Related implications are finally proposed, which can offer valuable guidance on reforming the environmental regulation and improve market outcomes in China.