“Urban Dual Renovation” is a crucial policy measure aimed at improving ecological environmental quality, addressing infrastructure shortcomings, and enhancing public service levels. This initiative contributes significantly to elevating residents’ quality of life and increasing their sense of happiness and fulfillment. This study employs panel data from 271 prefecture-level cities in China from 2011 to 2021, utilizing a staggered difference-in-differences model to empirically examine the impact and mechanisms of the “Urban Dual Renovation” policy on urban green development welfare. Additionally, the research explores the policy’s spatial spillover effects. The study’s findings are as follows: (1) The “Urban Dual Renovation” pilot policy demonstrates a significant positive effect on improving green development welfare levels. This conclusion remains robust after undergoing multiple dimensions of reliability tests, confirming the policy’s effectiveness in promoting sustainable urban development. (2) Mechanism analysis reveals that “Urban Dual Renovation” primarily enhances urban green development welfare through three pathways: improving infrastructure construction, increasing public awareness of environmental issues, and boosting green economic efficiency. These mechanisms highlight the multifaceted approach of the policy in addressing various aspects of urban development. (3) Heterogeneity analysis indicates that the aforementioned effects vary depending on urban location and city size factors. This finding suggests that the policy’s impact is not uniform across all cities and may require tailored approaches for different urban contexts. (4) Further examination reveals significant spatial spillover effects of the “Urban Dual Renovation” pilot policy on urban green development welfare. The policy’s benefits extend beyond the pilot cities, contributing to improved green development welfare in surrounding areas. This spatial diffusion of positive outcomes underscores the policy’s broader regional impact. This study contributes valuable empirical evidence to the understanding of urban renovation policies and their effects on sustainable development, offering a solid foundation for future policy formulation and urban governance strategies.