Internationalization and innovation have long been important research issues in strategic management. This study aims to investigate the relationship between internationalization and innovation and further to understand the moderating role of absorptive capacity and FDI location. We employ negative binomial regression to test our hypotheses by selecting Taiwanese manufacturing firms as our sample. The empirical results show that firm internationalization has significant positive association with innovation. Also, we find that the impact of internationalization on innovation will be heightened when firms have better absorptive capacity and invest in developed countries. This study has made contributions to literature through systematic investigation on how firm internationalization influences the level of innovation considering firm absorptive capacity and FDI location.