Land finance has played an essential role in China’s fiscal system, and the use of such in the future will impact the development of the industry. Introducing the terms land transfer-centered (LTC) mode and land investment-centered (LIC) mode, for land finance, this study aims to understand the relationship between land finance and industrial structure change by incorporating spatial factors. Using panel data at the Chinese prefecture-level from 2004 to 2017, the dynamic spatial Durbin model (SDM) was applied. The empirical results indicate that the industrial structures of the cities have spatial dependence. Furthermore, the employment of the LTC and LIC modes resulted in different industrial structures, both in focal and adjacent cities. Specifically, the LTC mode, which helps the government to gain land conveyance revenue, cannot boost the optimization of industrial structure. In a LIC mode where the agreement-based land transfer area is expanded, the advancement of industrial structure is hindered, while a LIC mode that increases the agreement-based land transfer price can facilitate the upgrade of industrial structure to some extent. Additionally, the spatial spillover effects of land finance suggest there are interregional competition and imitation, with negative effects on industrial structure change in adjacent areas. Considering the overall negative effects of land finance on industrial structure advancement, specific policy guidelines are provided based on the different industrial structure change pathways that result from the two modes of land finance. Improvement of the local government’s evaluation systems and formulation of targeted and instructive land finance strategies are crucial to upgrade industrial structure.