On the basis of analyzing groundwater-environmental capacity and environmental effect, the concept of groundwater-environmental capacity is discussed. The discussion holds that groundwater-environmental capacity is maximum value, which the groundwater system bears the effect of natural and human activity in a certain constraint condition. So as a case study of Shanghai City, groundwater-environmental capacity is analyzed by using evaluation indexes of critical water level, land subsidence and water quality. Its application is used in preventing land subsidence, and the working mechanism of groundwater resources management and land subsidence controlling is analyzed.