Based on the hypothesis of incentive and supervision and the hypothesis of moral hazard, this paper theoretically discusses the impact and mechanism of directors' and officers' liability insurance on the innovation efficiency of enterprises. The study found that the purchase of D&O insurance can significantly improve the innovation efficiency of enterprises, and the above conclusion still holds after a series of robustness tests. The further research on the influence mechanism shows that D&O insurance can promote the innovation efficiency through three ways: fault-tolerant mechanism, supervision mechanism and resource constraint mechanism. Considering the influence of internal and external governance environment on the above relationship, further research shows that the improvement effect of directors' liability insurance on innovation efficiency only exists in enterprises that provide long-term incentives and are in a higher market competition environment. In addition, the improvement effect of D&O insurance on innovation efficiency is mainly reflected in that it significantly improves the high-quality innovation output and optimizes the innovation output structure of enterprises. The conclusion of this paper expands the research on the driving factors of corporte innovation and its mechanism, and also provides practical experience for the benign development of D&O insurance in enterprises.