China’s service trade competitiveness is weak, and the service industry occupies a low position in the GVC (Global Value Chain); therefore, promoting the upgrade of the GVC of China’s service industry is worth studying. Under the new situation of the continuous integration of the digital economy and the real economy, the digital economy has injected new momentum into the mid-to-high end of the GVC of China’s service industry. Based on the panel data of the service industry sub-sectors, the mediating effect model is constructed, and the system GMM (Generalized Method of Moments) is used to empirically determine whether the digital economy can significantly improve the participation and position of China’s service industry in the GVC, and promote the upgrading of the GVC of China’s service industry. This conclusion still holds after replacing the independent variable measurement indicator, adding control variables, considering changes in industry trends, and using quantile regression and other robustness tests. The promotion effect of the digital economy on the upgrading of the GVC of China’s service industry shows heterogeneity in different service objects and service industries with different factor intensities, indicating that the digital economy will affect the internal structure of the upgrading of the GVC of China’s service industry. The results of the mediation test found that the service trade cost, multilateral resistance to service trade, service industry structure, financial development level, human capital and service export complexity are the mechanisms for the digital economy to enable the upgrading of the GVC of China’s service industry. This study improves the analysis of the impact factors of the GVC in the service industry, enriches the theory of the GVC, and improves the research content of digital economy theory. This study also provides a reference for other developing countries similar to China on how to promote the upgrading of the GVC of the service industry in the process of digital economy development.