Abstract: Rare earth extracting and smelting process will produce a large number of “three wastes” environmental pollution problems, enhance the collaborative eco-innovation ability of the upstream link of the extracting and smelting enterprises is the key to realize the low-carbon, green and high-quality development of China’s rare earth industry. Based on the evolutionary game theory, this paper constructs a collaborative eco-innovation evolutionary game model between the upstream extracting and smelting enterprises in the rare earth industry chain under government regulation, analyzes the dynamic evolution process of collaborative eco-innovation between the two parties and their game equilibrium strategies, and carries out simulation analysis. The results of the study show that the higher the benefits and the lower the costs of eco-innovation, the more helpful to rare earth extracting and smelting enterprises to adopt collaborative eco-innovation behavioral strategies; “free-riding” benefits will have a negative impact on the collaborative eco-innovation of rare earth extracting and smelting enterprises; there exists an optimal collaborative eco-innovation benefit distribution coefficient, enables an optimal benefit distribution coefficient for collaborative eco-innovation, which maximizes the probability that the extracting and smelting enterprises will adopt collaborative eco-innovation behavioral strategies; the government’s implementation of the incentive and punishment mechanism can increase the motivation of the extracting and smelting enterprises to participate in eco-innovation and reduce the “free-riding” behaviors. At the same time, increasing the cost subsidies for eco-innovation and the punishment for “free-riding” behavior of the extracting and smelting enterprises can accelerate the convergence of the evolutionary game system towards cooperative eco-innovation.