In the new phase of higher-level opening-up transitioning to institutional openness, how to leverage institutional innovation to unlock the innovation dividends of the dual-circulation strategy has become a critical issue for achieving high-quality development. This study innovatively measures institutional openness levels through the synergy of domestic institutional innovation and international free trade agreement network integration. Based on A-share listed company data from 2013 to 2022, we systematically examine the empowering effects and mechanisms of institutional openness on corporate innovation. Findings reveal that institutional openness significantly enhances the dual-circulation strategy’s promotion of corporate innovation, a conclusion that remains robust after rigorous tests. Mechanistic analysis indicates three primary pathways: (1) Strengthening economic agglomeration to amplify knowledge spillovers and factor sharing effects under dual-circulation; (2) Alleviating financing constraints to provide stable funding for innovation activities; (3) Driving digital transformation to expand technological boundaries and innovation possibilities. Heterogeneity analysis highlights that this empowering effect is more pronounced in regions with low market segmentation, high-tech industries, enterprises with internationalized governance structures. Breaking away from traditional perspectives that view institutional openness as a single external factor, this study demonstrates its dual functions as a “circular amplifier” and “innovation catalyst”. China should leverage the new dual-circulation development paradigm to pool high-end innovation resources and break free from being locked into the lower end of the value chain. By deepening institutional opening-up to align with international high-standard rules, China can unlock institutional dividends and enhance its influence in international institutional discourse, thereby continuously improving the innovation capabilities and development resilience of enterprises.