Abstract: During the process of current agricultural modernization, studies on institutional innovation of eco-recycling type cooperative farms are of great importance in that they can provide practical guidance for agricultural modernization and rural development. Based on a case study of Donglin Farm, a cooperative farm in Taicang County of Jiangsu Province, this paper focuses on the analysis of institutional elements and eco-recycling agricultural mode to explore its institutional innovation mechanism. The study shows that the village committee serves as the new agency of the scale agricultural operation, which consists of crop farming, livestock breeding, and eco-tourism agriculture. It represents a typical multifunctional and integrated cooperative farm, serving many purposes including development planning for agricultural industrialization, farmers’ employment security, and rural social administration. Institutional innovation mechanism of cooperative farms mainly includes: the cooperation between local government and village committee in the formulation and operation of the regulating rules, normative and cultural-cognitive institutional rules as well as the reproduction of cooperative farm’s production mechanism, which can be served as institutional incentives. For sustainable development of cooperative farms, this study suggests to improve the performances of eco-recycling cooperative farms by using multi-dimensional incentives and institutional structures as well as the development of its institutional elements and operation mechanism. The successful eco-recycling cooperative farm operation provides a sustainable approach for grain production in major grain producing areas.