Conventional linear innovation research methods are difficult to adapt to the complex problems faced by major water conservancy projects in technological R&D and management practices. Therefore, researching the innovation performance of major water conservancy projects has important theoretical significance and practical value for promoting the high-quality development of the water conservancy industry. Based on grounded theory, this paper systematically identifies the influencing factors of the innovation performance of major water conservancy projects and constructs a system dynamics model using the system dynamics method, thereby exploring the enhancement effect of key factors on the innovation performance of major water conservancy projects. The research results show that the project innovation performance is comprehensively influenced by three factors: technology, organization and environment; knowledge management has a significant enhancing effect on the innovation outcome and R&D management throughout the project lifecycle; institutional innovation shows a slow but persistent impact feature in the simulation; after the policy dividends accumulate continuously, the industry ecosystem can significantly improve the project innovation performance.