Based on the panel data of 31 provinces, autonomous regions and municipalities in mainland China from 2015 to 2019, this paper explores the impact of local government debt on industrial structure optimization with the background of "dual circulation" and the relevant factors of "dual circulation" as intermediary variables. The research finds that under the background of "dual circulation", local government debt has a restraining effect on the rationalization of industrial structure and a promoting effect on the upgrading of industrial structure. From the aspect of industrial structure rationalization, the variables of internal circulation level such as resident consumption structure, fixed asset investment rate, real interest rate, technology level and urbanization rate have a significant intermediary effect on the impact of local government debt on industrial structure rationalization, while the variables of external circulation level such as foreign trade level and foreign direct investment level have no significant intermediary effect on the impact of local government debt on industrial structure rationalization; From the aspect of industrial structure elevation, the internal circulation level variables, such as technology level, real interest rate, urbanization rate, and the external circulation level variables, foreign direct investment level, have a significant intermediary effect on the impact of local government debt on industrial structure elevation. In the future, it is of necessity to plan the expenditure direction of local government debt more scientifically, and better promote the optimization and upgrading of industrial structure by promoting the rational allocation of domestic and international market resources, promoting technological progress, and improving the level of urbanization.