Overcapacity is a potential threat to the development of developing economies. Public policies are widely regarded as an important solution to resolve overcapacity. However, little is known about the impact of placebased economic transition policies on overcapacity. To fill the gap in existing knowledge, we discuss the impacts of a large-scale place-based economic transition policy, the supporting policy for resource-exhausted cities (SPREC), on firm overcapacity using the data from Chinese listed companies from 2004 to 2021. The key findings are as follows. First, we provide robust evidence that the SPREC can alleviate firm overcapacity. Second, the SPREC can mitigate overcapacity by enhancing investment efficiency, promoting technological innovation, and improving market competition. Third, the baseline effect is more prominent in state-owned enterprises, the western region, cities with higher resource dependence, and industries with overcapacity. Finally, the SPREC can promote the sustainable development of enterprises by mitigating overcapacity. Overall, we complement the literature on public policy solutions to overcapacity and deepen the understanding of the transition and sustainable development of resource-exhausted cities.