By building a composite index for measuring national digital economy development and sectoral digital intensities, this paper derives metrics of industry-level digital economy penetration under the framework of specialization within global value chains (GVCs), systematically analyzes the mechanisms through which digital economy development affects GVCs upstreamness, and examines the moderating effect of institutional quality. The study shows that different dimensions of digital economy development significantly boost GVCs upstreamness, a conclusion that holds even after accounting for endogeneity through dynamic panel models with instrumental variables based on past data. Further research shows that technological innovation capabilities and resource allocation efficiency have gradually become important channels for digital economy development to boost GVCs upstreamness. Adding indicators on institutional quality reveals that greater institutional quality not only directly promotes GVCs upstreamness but also reinforces the impact of digital economy development on higher GVCs positioning.