Abstract: Under the background of strong government support for the development of agricultural mechanization, agricultural machinery enterprises, as an important part of the industry chain, are significant in terms of how their profitability is affected by the subsidy policy. Based on the analysis of the influencing mechanism of the agricultural machinery purchase subsidy policy on the profitability of agricultural machinery enterprises, this paper constructed a theoretical model and conducted an empirical analysis based on the micro-enterprise data of 10 sub-industries of agricultural machinery from 1998 to 2013 from the Chinese Industrial Enterprise Database. Results show that after the implementation of the agricultural machinery purchase subsidy policy, the number of agricultural machinery enterprises above the designed size soared, from 125 in 2007 to 1 859 in 2008 and maintained a high-speed growth trend, bringing severe overcapacity and excessive competition to the agricultural machinery market. This policy did have a positive effect on the profitability of agricultural industrial enterprises. However, this positive effect will show an inverted U-shape change over time. The effect on those industries, which received major investment subsidies including tractor manufacturers and agricultural and horticultural equipment manufacturers, has tended to decrease over time. Based on the above results, this paper provides the following suggestions: to fully affirm the boosting effects of the agricultural machinery purchase subsidy policy on agricultural machinery enterprises and agricultural mechanization, to adjust the allocation of funds to reduce the subsidy funds in the tractor and equipment manufacturing industries gradually, and to change the subsidy focus properly to encourage technological innovations.