In the digital economy era, online markets are crucial venues for resource allocation, and optimizing resource allocation is a vital pathway to promote industrial transformation and upgrading. Based a two-way fixed effects model, a mediation effect model and a threshold effect model, the impact and underlying mechanisms of the development of online markets on the optimization of industrial structure in China were analyzed, using data from 288 prefecture-level cities from 2014 to 2021. It is found that the development of online markets significantly enhances the advancement of industrial structure but somewhat inhibits the rationalization of industrial structure. These conclusions remain robust after a series of robustness checks. The mediation effect test results show that the development of online markets can promote the advancement of industrial structure by improving resource allocation efficiency. Further analysis indicates that the promotion of industrial structure advancement by online markets exhibits heterogeneity, being more significant in the eastern and western regions, in areas with larger populations, and in regions with lower levels of digital infrastructure. The threshold model results reveal a marginally increasing nonlinear characteristic in the promotion of industrial structure advancement by the development of online markets. Therefore, to fully leverage the resource allocation role of online markets, it is necessary to further expand the scale of online markets, regulate their operations, define the boundaries of different types of online markets, strengthen market access reviews, enhance the role of data mechanisms, and bolster anti-monopoly and market supervision to encourage more participants. Different regions should be encouraged to adopt differentiated strategies for online market development.