This paper explains the influence of mechanism of agricultural machinery purchase subsidy policy on the development of agricultural machinery operation service market from theoretical perspective and uses the provincial panel data from 2004 to 2013 to analyze the impact of agricultural machinery purchase subsidy policy on agricultural machinery operation service market. The result shows that the agricultural machinery purchase subsidy policy has both “crowding-in effect” and “ crowding-out effect ” on the service market of agricultural machinery operation,but the “crowding-in effect” is stronger than the “crowding-out effect”,and the subsidy of agricultural machinery purchase has a positive effect on the development of agricultural service market. The effect of the agricultural machinery purchase subsidy policy on agricultural machinery operations service market in the main grain producing areas is stronger than that in the nongrain major producing areas. Therefore,this paper puts forward some policy suggestions,such as increasing the subsidy of agricultural machinery,cultivating the service organization of agricultural machinery,guiding the farmers to agricultural machinery operation service market and developing the agricultural machinery operation service market in mountainous areas.