The rapid industrialization of Taihu Basin increases the resources and environment perturbation in this region. One significant factor is the unreasonable locations of industry. To utilize the enterprise distribution data of economic census, using the spatial analysis and Ordered Probit model, this study analyzes the evolution of industrial enterprise spatial distribution and the mechanism of their locational action after the reform and opening-up policy, and focuses on how the protection of Taihu Basin might affect their locations. The results show that before the explosion of water crisis in Lake Taihu in 2007, the industrial enterprises in this region mainly agglomerate in Shanghai and Suzhou-Wuxi-Changzhou region(which is along the northern Lake Taihu). However, it takes on the tendency of decentralization over time, especially for those enterprises with pollution which have revealed an unreasonable spatial distribution, i. e. they changed their locations to upper reaches of Lake Taihu(such as Yixing, etc.). This behaviour becomes an important factor which leads to the explosion of water crisis. Indifference to environmental protection awareness and omission of local environmental protection mechanism are the major reasons of unreasonable spatial distribution.